If you’re reading this on Outlook, most of the graphs won’t show. I’d recommend you read it online

📕 Reads of the Week

Top 3 Market Updates

1. US Direct lending volume fell to a three-year low. Pitchbook

   

2. Global Technology buyout deal value has also fallen sharply. Bain & Company

   

3. Despite this, deals priced between 450-499bps represent more than half of YTD activity. Blackrock

Manager Updates

• Ares raised $12.7 billion for its Pathfinder Fund III, the largest global asset-based finance fund in the market. Ares Alternative Credit now manages ~$57.3 billion, including $33.1 billion dedicated to non-investment grade assets. More here

Apollo and Blackstone announced a $35 bilion package to finance Broadcom’s new AI XPV Platform. The financing will enable over 20GW in compute capacity for leading frontier AI labs through 2028. The initial transaction will facilitate Anthropic’s previously announced capacity expansion of more than 1GW of compute infrastructure for training and inference starting in mid-2026. Link

Partnership Updates

• Janus Henderson is acquiring Rantum Capital, a Frankfurt‑based private markets investment manager. Founded in 2013, Rantum Capital focuses on providing private debt and private equity financing solutions to family and entrepreneur‑owned small and mid‑sized companies in Germany, Austria and Switzerland. The firm has raised around €1.2 billion of capital across its private credit and private equity strategies. Link

This acquisition builds on Janus Henderson’s recent expansion in private markets, they also acquired NBK Capital in the Middle East and Victory Park in the US in 2024.

BDC’s Q2 Redemptions: Week 2

4 BDC’s announced redemption requests last week: HLEND, TPG, BDEBT, and HPS Corporate Capital Solutions.

HPS’s $26 billion HLEND generated much of the attention, and as expected, capped its 13.3% of redemption requests at 5%.

Below is a summary of Q2 so far.

Credit Secondaries: Solving Private Credit’s DPI Problem

The 2019 Vintage Is Running Out of Road

• Ares believes that 2019 vintage private credit funds have an average DPI multiple of ~0.7x.

• These funds only have a few years to convert a meaningful share of NAV into distributions.

Credit secondaries are one of the fastest-growing segments of private markets.

• Beginning in the early 2020s, and accelerating meaningfully through 2022 and 2023. Apollo

Despite this growth, credit secondaries remain a fraction of the overall direct lending market.

• Carlyle estimates that only $20 billion of credit fund exposures traded in 2025.

• This impliying a fund turnover rate (Secondaries Market / Direct Lending Market) of ~1%.

• This is well below the 2–3% observed in private equity secondaries. Carlyle

This gap highlights the headroom for growth

• Apollo expects the private credit secondaries market to scale from $20 billion in 2025 to $50 billion within two to three years.

• Carlyle believes the credit secondaries market will grow to $80+ billion by 2030, comprised of ~$55 billion in GP- centered volume, which is experiencing the most significant growth, and ~$25 billion in LP-centered volume.

GP solutions are experiencing the most growth

• Unlike private equity continuation vehicles, where one or a small number of assets are typically selected, credit continuation vehicles are generally structured as full-fund solutions, with diversification as a core feature.

• Alignment is typically stronger than in LP interest transactions since the new vehicle is supported by GP carry rollover, additional GP capital commitments, and refreshed governance frameworks, such as enhanced reporting, Limited Partner Advisory Committee (“LPAC”) rights, tighter structural safeguards, and tailored downside mitigation features.

• For buyers, continuation vehicles offer the opportunity to deploy capital into seasoned portfolios with known performance characteristics. Buyers can benefit from full access to GP deal teams and detailed asset-level information, including underwriting memoranda, financial models, portfolio reviews, and valuation materials.

Pricing is one of the most easily misconstrued elements of the market

• Credit secondaries priced at 92% of NAV on average in H1 2025, up from 91% at the end of 2024.

• Strong pricing was fueled by significant fundraising dedicated to private credit and strong demand for senior direct lending interests. Jefferies

Beware of Discrete Discounts

Credit secondaries sources that have participated in or worked on the half-dozen mega-continuation vehicles in the market gave LCD generalized but realistic figures to illustrate how these processes usually work.

For example, a deal that prices nominally above par — for example, 102 — may get three points of discount from the portfolio’s NAV (which may be marked at 97) and another four points from the two quarters of post-reference date cash flows that have accrued to the buyers’ benefit. This brings the indirect discount to a total of seven points, and an effective price of 95, on a deal that may have a headline price of 102.

This is why no deals have traded at a “true premium” to par, a number of sources said. One banker estimated that the highest effective price seen in the market so far has been par, at most. Pitchbook

👉 Read More: Carlyle, Apollo, Coller Capital, Ares, Jefferies, Pitchbook

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💰Fundraising News

Ares raised $12.7 billion for its Pathfinder Fund III, the largest global asset-based finance fund in the market. Ares Alternative Credit now manages ~$57.3 billion, including $33.1 billion dedicated to non-investment grade assets. More here

The Pathfinder family of funds have pledged to donate at least 5-10% of the carried interest profits from to global health and education charitable organisations. Based on performance to date, the Pathfinder funds have already accrued approximately $56.9 million in pledged charitable contributions. Read more about Promote Giving here

Hunter Point Capital, a New York-based manager, closed its inaugural vintages of its NAV Lending and Preferred Solutions strategies, with total commitments of $4.3 billion. The GP Financing Solutions platform offers NAV-based loans and preferred financing solutions to investment managers. To date, it has completed 13 transactions. More here

Man Group, a UK-based manager, announced a first close of its Man Opportunistic Credit Fund III. The fund is targeting a final close of $1.25 billion. The strategy focuses primarily on mid-market, off-the-run and other less competitive opportunities, combining steady-return asset pools with direct-to-company financings and bespoke transactions. More here

KKR has had a first close of $1 billion for its Opportunistic Real Estate Credit Fund III. The fund will invest opportunistically in real estate in the US and Western Europe. The fund will focus on experienced sponsor and will also invest in mezzanine loans, preferred equity and single-asset, single-borrower deals. More here

This newsletter is for educational and entertainment purposes only. It should not be taken as investment advice.

If you’re reading this on Outlook, most of the graphs won’t show. I’d recommend you read it online

📕 Reads of the Week

Market Updates

• Mercer’s Guide to GP-Led Continuation Vehicle Terms:

  • Management fees typically range between 0.75-1.00%. This hasn’t changed over the past five years.

  • Nearly all vehicles used tiered carry structures with an average of nearly 3 tiers and a maximum carry of 20%,

  • GPs commit between 6% and 10%.

  • Watch out for the deferred payments…

  • Learn more here

• 17Capital: NAV loans uncovered. Link

• Ares: A Comprehensive Guide to Private Infrastructure. Link

• Ares: Public Market Valuations Overtake Private Markets. Link

Manager Updates

• Fasanara Capital launched its Ferrari Lending Platform. The platform is a partnership with Mattioli Automotive Group and will allow Fasanara to originate and manage loans secured by Ferrari cars. Link

Partnership Updates

• Blackstone signed a new private credit partnership with Nippon Life, one of Japan’s largest insurers. As part of the agreement, Nippon expects to allocate at least $9.4 billion to Blackstone’s private credit and structured credit strategies over the next five years. More here

Your chance to buy alleged MFS fraudster Paresh Raja’s Ferrari.

European Prestige UK Limited, a dealer in “luxurious, high-performance and limited-production vehicles”, is the lucky buyer of Raja’s 8 supercars. Readers interested in owning a piece of financial scandal history will doubtless be hitting refresh on the listings on their website. (Source FT:here)

BDC Redemption Season is Back

If you missed Season 1 of BDC redemptions, here’s a recap of what happened in Q1:

• Non-traded BDC redemption requests averaged ~10%.

• Most managers capped payouts at 5%.

• Blackstone and Oaktree decided to meet the full redemption requests.

BDCs Q2 Updates: Week 1

Last week saw the first wave of redemption announcements:

• Redemption requests have increased for all managers so far.

• Cliffwater’s redemption requests increased 20% QoQ.

• All managers have decided to cap at 5%.

Season 2 Spoilers

• Redemption requests will likely increase for all managers.

• Most managers will cap at 5%.

• Expect some fairly dramatic headlines.

So before your uncle forwards you an article asking if everything is okay, here are a few points worth keeping in mind.

The gates exist for a reason

• Before non-traded BDCs existed, investors could either have daily liquidity in a traded BDC or illiquidity in a 10-12 year private commingled fund.

• The innovation of non-traded BDCs was to allow investors to own illiquid assets while providing a structured path to liquidity, with the structure self-amortizing so investors could be made whole without forced asset liquidations.

• The 5%/20% limits weren’t pulled out of thin air but rather designed to track the weighted average life of the underlying loan portfolio.

• Meeting the contractual 5%/20% is exactly what these structures were designed to do.

• See Three Misunderstood Facts about BDCs.

We’ve Seen This Redemption Playbook Before

• It’s helpful to look back at history and understand how managers worked through similar instances when they were oversubscribed.

• Blackstone’s Real Estate Income Trust (BREIT) is one fund that faced a period of heightened redemption requests where investors asked to withdraw roughly 20% of shares at the peak (Exhibit 1). The fund ultimately fulfilled 100% of requests over a fourteen-month period.

• Assuming redemptions spike two to four times their quarterly limit in Q1 2026, iCapital estimates oversubscriptions could continue for a three to five quarter period.

See iCapital’s analysis.

Not all BDCs are equal

• Much of the media hype focuses on BDCs as a whole.

• However, as Neuberger highlighted,BDCs Have Shown Wide Performance Dispersion .

Lending money isn’t hard. Getting repaid can be hard. The managers who understood that during the very good times are the ones who will stand out now in this less certain environment.

TCW: Looking Beyond Cockroaches and Canaries

It’s the boulders NOT the pebbles.

• Focus has been on HNW investors.

• In reality, the redemptions are largely driven by a few larger family offices or single institutions (See Vista Credit).

• 90% of investors are choosing to remain invested.

Non-Traded BDCs ≠ All Private Credit

• Attention will be focused on the non-traded BDCs.

• As Apollo and others have pointed out, the market is much larger than this.

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Morgan Stanley: Private Credit Still an All-Weather Asset Class?

Morgan Stanley released a white paper on US and European Direct Lending. Below are a few graphs which might be helpful in your fundraising decks.

Europe Overtakes the US on Direct Lending Premiums

• Over the past three years, European direct lending has delivered an average premium of ~240 bps.

• Europe saw an increase in illiquidity premium from ~180 bps in 2023 to ~260 bps in 2025.

• In the US, the premium has compressed from ~270 bps in 2023 to ~180 bps in 2025.

Software Valuations have Normalised

• Software accounts for ~20-30% of Direct Lending

• Valuation multiples exceeded ~30x EV/EBITDA at their 2021 peak.

• They have since normalised significantly.

• Listed software companies continue to deliver revenue growth of approximately 10–15% with forward expectations of 10–11% p.a. for the next two years.

Direct lending benefited from a “golden age” of higher base rates

As policy rates have declined and spreads have compressed from peak levels, headline returns have moderated accordingly.

More recently, wider public credit spreads and the reset in public software valuations may have created an impression that private credit software assets may be susceptible to future markdowns. .

👉 Read the full report here

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💰Fundraising News

• Crescent Capital Group, a Los Angeles-based credit manager, raised $10.8 billion for its fourth U.S. direct lending fund, the largest fund in the firm’s history. The fund invests in sponsored lower middle market companies across the United States, targeting companies with EBITDA ranging from $5 million to $50 million. More here

• Eurazeo, a Paris-based asset manager, closed its $4.5 billion Private Debt VII fund. The firm’s flagship direct lending strategy focuses on financing lower mid-market companies across Europe and is already 65 percent deployed across more than 70 portfolio companies, totalling €2.5 billion in investments. More here

• HSBC Asset Management closed its $2 billion UK direct lending fund II. The strategy invests alongside HSBC’s bank in senior secured loans to lower- and core-middle-market businesses. It typically lends at 3-4x leverage with robust maintenance covenants and equity cushions of c.70%. More here

• PGIM, a Newark-based global asset manager and the investment arm of Prudential Financial, launched the PGIM Global Private Credit Fund SCA, a Luxembourg-domiciled fund targeting wealth investors in the United Kingdom, continental Europe and Asia. The fund invests in senior secured loans to middle market companies across North America, Europe and Australia, focusing on companies with EBITDA of $10 million to $75 million. More here

Didn’t make the cut

Software Deal Activity Was Elevated in the 2020-2022 Vintage. Link

https://www.connectmoney.com/stories/nav-reits-bdcs-have-returned-over-82b-to-investors-since-22/

This newsletter is for educational and entertainment purposes only. It should not be taken as investment advice.

If you’re reading this on Outlook, most of the graphs won’t show. I’d recommend you read it online

📕 Reads of the Week

Market Updates

• Chicago Fed: Private equity-backed life insurers are fueling private credit.

  • While life insurers have long provided this form of private credit, private placements lending increased from $386 billion in 2014 to $849 billion in 2024.

  • In relative terms, private placements accounted for 14 percent of life insurers’ general account assets in 2024, up from 10 percent in 2014

  • Life Insurance PE-owned life insurers more than doubled their annuity market share from 8.5% to 18% and their indexed annuity market share from 16% to 33%.

  • 👉 Download the full report

• PGIM: Headlines vs. Health. Link

• Carlyle: Q2 Global Private Markets Quarterly. Link

• PWC: Private Credit Survey. Link

How much do you expect your allocation to private credit to change?

What IRR are you targeting on an unlevered basis?

👉 Read PWC’s Survey here

Data Centers and AI

• Apollo and Blackstone are structuring a $36 billion package financing AI for Anthropic, in one of the largest transactions of its kind:

  • The financing is designed to enable Anthropic to acquire Google’s tensor processing units (TPUs), which will then be leased back to the Anthropic for use across its expanding compute footprint.

  • Broadcom is expected to provide a form of residual value guarantee on the underlying hardware.

  • The financing will be divided into multiple tranches with Apollo and Blackstone syndicating portions of the debt to other institutional investors while retaining meaningful stakes themselves.

  • More here

• Blue Owl: Inside a Data Center. Link

• Brookfield: Opportunity in a constrained market. Link

• PIMCO: A-rated and higher hyperscalers have plenty of debt capacity. Link

  

BDC Updates

• BDCs with higher SaaS exposure have underperformed their peers. Link

Partnership Updates

• TD Bank, the 10th-largest commercial bank in the US by assets, is looking to partner with private credit managers. Link

• Investec, the UK-based bank, and Sequoia Investment Management Company, a global private credit manager dedicated to infrastructure, partnered to finance UK and European energy and infrastructure. Link

Restructuring

• Ares and MetLife disagree over the restructuring of Eagle Football debt. Link

• Blackstone and KKR to assume control of the dental group Affordable Care. Affordable Care was valued at $2.7bn when Harvest Partners acquired its stake in 2021. Link

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Partners Group: Separating Headlines from Reality

Private Credit Headlines Have Surged

While headlines warrant attention, they often overstate the near-term implications and underappreciate the underlying resilience in both current fundamentals and the macro backdrop.

Coverage Ratios Show Resilient Fundamentals

Interest coverage ratios have improved from mid-2024 lows, supported by lower policy rates and healthy EBITDA growth. Sub 1.0x borrowers have declined materially, falling to 14% in Q4 2025 from 21-23% throughout 2023 and early 2024.

Not All Software Is Equal

Incumbents with strong moats, proprietary data, AI-enabled workflows, and exposure to regulated or mission-critical end markets are better positioned to sustain value and drive efficiency gains. These are typically found in infrastructure and vertical application software.

By contrast, more vulnerable software tends to be rules-based, repetitive, and often tied to functions like customer service or project management. This exposure largely sits within horizontal application software, which accounts for around 35% of total software exposure within the U.S. direct lending market.

This real at-risk exposure is just 7%, well below the 20% headline figure.

Q1 Redemptions were five times above the prior four-quarter average

Redemption caps are a feature, not a flaw.

Most vehicles can meet redemptions at stated limits for at least the next 4-5 quarters, supported by multiple levers, including loan turnover of around 25-30% annually, liquidity sleeves of 10-15% in cash and liquid credit, and access to debt and bank credit lines.

The more important story is one of transition.

For much of the past decade, the dominant strategy was straightforward: build a diversified portfolio, apply leverage, and collect spread. That approach worked well in a benign default environment.

Partners Group thinks this will be harder to replicate going forward:

Private credit is now entering a new normal defined by greater bifurcation and wider dispersion of returns.

In a more differentiated market, selectivity becomes the primary driver of returns.

It is against this backdrop that we assess the current private credit fundamentals, separate headlines from reality, and offer a path forward for earning returns in private credit.

As an example:

Two thirds of managers have less than 10 years experience

With nearly half of direct lending managers formed post-COVID and close to 70% established within the past decade, many have yet to be tested through a full cycle – suggesting differentiation across managers is likely to increase further.

👉 Read the full report here

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💰Fundraising News

• Bridgepoint, the London-based manager, is closing its $5.8 billion European direct lending fund IV. The fund finances sponsored European middle-market businesses. The fund is nearly 50% larger than its predecessor fund, which closed at €3.4 billion. Link

• Pemberton, a London-based private credit manager, closed its $4 billion Strategic Capital IV fund. Launched in 2017, the opportunistic strategy invests in performing companies across Europe. More here

• Oaktree partnered with Pantheon to scale its European Direct Lending with a target to deploy up to $1.2 billion. Pantheon will provide additional capital alongside Oaktree’s existing portfolio of seeded investments, supporting a strategy focused on senior secured, first-lien loans to corporates across Europe and the UK. More here

• AHL Ventures, a Kenyan-based manager, announced a first close of $30.5 million for its debut institutional credit fund. The fund lends to African businesses, with a focus on financial inclusion, climate-related businesses, and agriculture. It can invest across the capital, providing senior secured, mezzanine and bridge loans. AHL continues to raise additional capital toward a targeted final close in Q1 2027. More here

This newsletter is for educational and entertainment purposes only. It should not be taken as investment advice.

If you’re reading this on Outlook, most of the graphs won’t show. I’d recommend you read it online

📕 Reads of the Week

AI and Data Centers

• Pimco: AI Credit Expansion: Assessing the Micro and Macro Risks (**Recommended Read**).

  • 👉 Read The Full Report Here

• Blackstone is partnering with Google to create a new U.S.-based company that will offer efficient data center capacity, operations, networking, and a compute-as-a-service. Blackstone will initially commit $5 billion to ensure the first 500 MW of capacity goes online in 2027. More here

Market Updates

• Private credit spreads in the spotlight.

  • Spreads in the US have widened by 50-100 bps since the start of the year, placing typical deal pricing around 525 bps.

  • The European market has barely moved. The average European direct lending spread for the last 12 months is 509 bps, 13 bps lower the full-year 2025 reading.

  • 👉 Read Pitchbook’s Analysis Here

• Pitchbook’s Global Private Market Fundraising Report. Link

• Bank lending to UK businesses fell to the lowest level in nearly 30 years.

  • Total lending to private businesses returned to levels last seen in 1998

  • SME loans have almost halved as a % of GDP since 2011.

  • See the FT Article here and BCG Research here

• KKR: 2021 and 2022 Vintages Reflect Weaker Underwriting; Other Vintages Are Better Positioned. Link

Partnership Updates

Citi and HPS announced a €15 billion Private Capital Program. The Program will finance €15 billion of sub-investment grade debt opportunities in EMEA over the next five years. Citi will source businesses based in Continental Europe, the UK, and eventually the Middle East. More here

Manager Updates

• Abry Private Debt acquired a $330 million private credit portfolio with Coller Capital. The portfolio is primarily senior secured loans across a variety of industries, including commercial and professional services, healthcare, and consumer discretionary. All underlying investments are backed by established sponsors. Abry will assume an active management role, working directly with sponsors, lenders, and management teams throughout its hold period. More here

• Switzerland’s public sector pension fund Publica is preparing to allocate up to $1.1bn into private credit. The fund is looking for external managers for two separate direct lending mandates: one focused on Europe, worth up to €500 million, and another targeting the US market for up to $550 million. More here

• Federal prosecutors are reportedly examining valuation practices at BlackRock TCP Capital Corp (TCPC). TCPC disclosed an unusual off-cycle update in January, warning that it expected to reduce the value of its portfolio by about 19%. The announcement triggered a sharp share price drop and was followed by multiple class-action lawsuits from investors alleging misleading disclosures and improper valuation of loan assets. Link

Bank SRTs

• MUFG is exploring an SRT tied to $2 billion of credit exposure to private credit funds. The deal would shift potential losses on BDC credit lines to institutional investors, while MUFG keeps the underlying loans on its balance sheet. More here

• JPMorgan is reportedly exploring, and SRT tied $4 billion of NAV loans spanning across North America, Europe, and the Middle East. Investors are expected to receive low-teens returns in exchange for absorbing first-loss exposure. More here

Diameter: WTF Is Going On In Private Credit?

Diameter published a 59 page deck summarising the state of private credit and where it sees opportunities. I’d recommend you read the whole report, below are a few of my favourites

👉 Read the full deck

Fees on private credit vehicles have exceeded those of traded credit

Public alternatives managers leaned into AUM and FRE growth; Private Credit became their engine

Private Credit M&A expanded amid FRE multiple expansion

• HPS was acquired for ~30x forward FRE in July 2025

Industrial-scale origination and deployment drove PC platforms’ enterprise value

This has many overlaps with to Sixth Street’s recent “factory model” piece.

Where do Diameter opportunities?

👉 Read the full report here (Page 50+ for opportunities).

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💰Fundraising News

Direct Lending

• Barings raised $19 billion for its latest global direct lending vintage. The strategy focuses on upper-middle-market borrowers with roughly $15m–75m EBITDA across North America and Europe.

• Antares Capital, a Chicago-based alternative credit manager, raised $8.5 billion for its third Senior Loan Fund. The fund invests in senior secured loans across U.S. and Canadian borrowers. More here

• Stellus Capital Management, a Houston-based direct lender, closed its $1.5 billion Stellus Credit Fund IV. The fund provides senior secured loans to sponsored businesses in the United States and Canada. It has already invested in 44 portfolio companies. More here

Asia

• Värde Partners launched its $1 billion Asia-focused private debt fund. The fund will invest across India, Australia, and Southeast Asia. The vehicle marks Varde's first Asia fund exclusively focused on private credit. More here and here

• ASK Alternates, a Mumbai-based private credit manager backed by Blackstone, launched its second private credit fund with a ~$250 million target. The fund will invest in senior secured lending to high-quality Indian businesses. It will target a gross IRR of 14 to 16 percent, in line with the 15 percent gross IRR delivered by Fund I. More here

• Granite Asia, a Singapore-based multi-asset investment manager, is raising final-close capital via DBS Private Bank for its inaugural closed-ended private credit fund. The fund held its first close at $350 million in 2025, with anchor commitments led by Temasek and Khazanah Nasional, and is targeting a final close at $500 million. The strategy targets returns of 16 to 20 percent per annum, with investor cash yields of approximately 8 to 10 percent annually. More here

Investment Grade

• PGIM launched the PGIM Investment Grade Private Credit Fund, the first private credit collective investment trust designed for defined contribution retirement plans. The fund provides exposure to investment-grade private credit and is intended for use within target date funds, stable value funds, and other multimanager retirement structures. More here

Specialist

• Shamrock Capital, a Los Angeles-based manager specializing in media, entertainment, and communications, closed its $813 million Shamrock Capital Content Fund IV. Consistent with its predecessor funds, Content IV will focus on acquiring premium, cash flow-generating content and media rights across the evolving global entertainment landscape. The strategy’s current pipeline spans music, film, television, sports, video games, and creator economy opportunities. More here

Didn’t make this week’s cut

Dispersion Revisited

There’s been no let-up for CCC-rated loans, with spreads widening by over 300 bps so far this year.

In contrast, higher-rated credits have shown remarkable resilience: BB-rated loan spreads have marginally tightened this year, making for a yield of just over 6% – about a quarter of the level of CCCs. In short, the rating bands are a world apart, with the sort of aggressive bifurcation normally seen in a recession. So, what’s going on?

Market participants are expressing a clear view: the weakest credits cannot handle elevated interest rates and will struggle to refinance through mainstream channels. The fundamentals appear to validate this concern: leverage on CCC-rated loans has crept higher while other rating categories haven’t seen such increases.

Given the risk of default and the reality of poor recovery rates, buyers expect to be compensated in the form of an outsized spread. Meanwhile, higher-quality names continue to attract a broad buyer base, particularly from CLOs, thereby keeping spreads tight.

What if the universe of private credit is larger than you think?

Barings: What You Don’t Invest In Matters. Link

This newsletter is for educational and entertainment purposes only. It should not be taken as investment advice.

Every quarter, I summarise the 400+ pages of earnings transcripts from the largest managers. I do this for two main reasons:

1. It helps me understand the consensus views.

2. It brings to light unfiltered and occasionally provocative opinions.

This is the piece I look forward to writing every quarter. If you take away one useful insight, I’d really appreciate it if you could forward this newsletter on.

📚 Quotes of the Quarter

• Provocative Opinions

  • The Obsession with Levered Lending is a Failure of Imagination

  • Don’t Trust the Headlines, Focus on Fundamentals

  • The Illusion of Liquidity in Fixed Income

  • BDC Redemptions

  • Blackstone Says BDC Investors Knew What They Were Buying

  • Blue Owl Says Its Problem Loans Have Recovered 1.1x to 1.2x

  • Ares Says It Has the Most Credit Dry Powder

  • Why Blackstone Likes Being Capital-Light

  • Institutional Investors are Coming Back to Direct Lending

  • Blackstone Is the World’s Largest Investor in AI Infrastructure

  • Private Credit Has Contracted Once. Banks Have Contracted Eight Times.

• Consensus Views

  • Spreads, Pricing & Market Conditions

  • Deployment & Origination

  • Manager Strategy & Platform Growth

  • Market Risks, Bubble Debate & Big Narrative

  • Wealth, Retail & 401(k)s

  • Partnerships & Strategic Alliances

  • Returns & Performance

  • Portfolio Quality, Defaults & Non-Accruals

  • Fundraising & Capital Formation

  • Investment Grade Private Credit & Insurance Demand

  • Infrastructure & Data Centers

  • PIK

  • Saaspocalypse

  • Blue Owl’s 10x Gain on Space X

  • Secondaries

Transcripts can be found here

Provocative Opinions

The Obsession with Levered Lending is a Failure of Imagination

If there was one quote that best captured how large managers feel about recent press coverage, it came from Marc Rowan.

Apollo

The press remains fixated on a $2 trillion slice of this market, which should be called levered lending. Most of the financial press treats this as if it is the entire story of what’s happening in private markets and it is far from it. The investment grade private credit market, which is being driven by the global industrial renaissance, is a $38 trillion market. Therefore, the total opportunity in private credit is some $40 trillion.

The obsession with this very narrow corner of the market, this $2 trillion slice levered lending, is frankly, a failure of imagination. Credit, in any economy, only comes from one of two places. It comes from the banking system or the investment marketplace. There is no third choice.

Does that mean that risk has been transferred to investors? I don’t think so. What has happened in our marketplace and the growth of levered lending, particularly exposure to BDCs, is a rational move by investors who are looking to de-risk. Most of the investors in levered lending have come from the sale of their equity portfolio. Investors rationally have decided that they can earn equity-like returns from first lien risk, rather than by holding equity for a portion of their more speculative exposures.

Private credit is just credit. You underwrite it well and it performs. You underwrite it poorly and it doesn’t.

↩ Return to index

Don’t Trust the Headlines, Focus on Fundamentals

Managers are united in Marc’s frustration.

KKR

So our suggestion is don’t trust the headlines. Stay focused on the fundamentals and how we are executing. That’s what ultimately matters and how we are spending our time. This approach has served us well for the last 50 years, and we expect will continue to for the next 50.

BlackRock

There has been a lot of attention on private credit, but the headlines do not reflect what clients are telling us, what our portfolio data shows, or where we see the market going. Demand is structural. Private credit serves an important role in the financing ecosystem. Banks, governments, and public capital markets cannot fully address the world’s growth and investment capital needs. That is not changing.

Apollo

Almost all the spread widening we saw take place, took place in the media and did not take place in the market with the exception of below investment grade software and in IG software to some extent, where we did see spread widening, where we just do not have nor do we want meaningful exposure given the diverse set of outcomes that can happen with respect to credit.

BlackRock

Much of the focus has been on wealth vehicles like BDCs, interval funds, and tender funds. These funds make up around $550 billion in AUM — or about 25% — of the $2.2 trillion private credit industry. Institutional demand is actually accelerating.

↩ Return to index

The Illusion of Liquidity in Fixed Income

Apollo

Fixed income trading capital in the world is now 10% of what it was in 2008, and the market is three times its size. The entirety of the market, whether you are investment grade or below investment grade, is just not that liquid. It just appears liquid on good days. We have already seen wholesale breakdowns in the liquidity of this marketplace during COVID and during UK LDI, and I expect that we will see this again.

↩ Return to index

BDC Redemptions

The common message was that redemptions are manageable, concentrated, and much smaller than the headlines imply.

Ares Management

If these two funds were to experience 5% quarterly redemptions for a full year, with no gross inflows...It could impact our FPAUM by approximately 1% annually.

Ares Management

The majority of repurchase requests during the most recent quarter came from a limited number of family offices... Over 95% of our investors did not request redemptions.

Blackstone

Contrary to this popular idea that it is small investors leading the charge, it is actually a smaller number of large investors who are double the size, on average, of the typical account in these vehicles. They are the ones — we saw this if you went back to BREIT, and it is the same story here with BCRED. The great mass, by number, of smaller investors tends to stick with the product over a long period of time. It is the bigger boulders, as opposed to the pebbles, where you get more movement in terms of redemptions.

Blue Owl Capital

While the level of debate around private credit has resulted in elevated industry-wide redemption requests, the actual impact to Blue Owl Capital Inc.’s revenues and earnings for the first quarter was quite modest. During the quarter, net outflows of roughly $170 million from OCIC and OTIC were less than six basis points of our beginning-of-period AUM.

BlackRock

Much of the focus has been on wealth vehicles like BDCs, interval funds, and tender funds. These funds make up around $550 billion in AUM — or about 25% — of the $2.2 trillion private credit industry. Institutional demand is actually accelerating.

Blue Owl Capital

For OCIC, redemption requests were concentrated, with 1% of investors representing a majority of tenders, and approximately 90% of the investor base elected not to tender at all. Generally, requests have been more investor-led than adviser-led, highlighting continued strong support from our partners in what we believe has been a headline-driven, not fundamental-driven, redemption environment.

KKR

In total, direct lending is $39 billion or 5% of our AUM. It’s an important business for us, but in the framework of KKR, it’s of modest size. And with a lot of focus on redemption activity in the wealth space, we note the size of our private BDC is even smaller, around $3 billion of AUM or 0.4% of our AUM in total. In terms of our public BDC, FSK is a little less than 2% of our AUM.

↩ Return to index

Blackstone Says BDC Investors Knew What They Were Buying

Blackstone

What has been more challenging is that some of the social media and press reporting is so different than the facts that we see. When you think about these products, they are sold not directly to individual investors; they are sold through financial advisers who are obviously sophisticated. There is incredible levels of disclosure when we are selling these products. If you look at BCRED, on the cover page, there are six bold highlighted lines talking about the liquidity limitations in the product.

To me, it is not a surprise that we have more than 300,000 customers, and yet, we have not heard complaints from them that they do not understand that they are trading away some liquidity for higher returns.

↩ Return to index

Blue Owl Says Its Problem Loans Have Recovered 1.1x to 1.2x

Blue Owl Capital

We have gone back and studied all of the cases where we have had restructurings or material amendments driven by performance issues. The actual statistics are: our average principal recovery in those cases has been $0.80 on the dollar. When you incorporate that we actually had several coupons in on average in those instances as well, our actual recoveries in total on our problem situations have been 1.1x to 1.2x.

↩ Return to index

Ares Says It Has the Most Credit Dry Powder

Ares Management

As one of the largest institutionally backed private credit providers globally, we believe that we have the most credit dry powder of any public player in the market, totaling more than $100 billion.

↩ Return to index

Why Blackstone Likes Being Capital-Light

Blackstone

Running capital light can be a harder business model — you have to raise money from third parties as opposed to borrowing large amounts of money and earning a spread on that. But we do believe that, given what can happen when the environment changes and what the regulatory climate can look like, being an investment manager gives us the greatest flexibility. Operating a business with virtually no net debt and no insurance liabilities means that if we need to use capital to do something at the firm level, it is available. There is no moment where we are facing any sort of liquidity crisis.

We pay out basically 100% of our earnings between our dividends and our stock purchases. We like this capital-light model. We like being an open-architecture third-party manager for our investors. We think that is the right long-term approach. And particularly when you get to moments of volatility, you are not going to see redemption risk at a firm level. There is no credit risk at a firm level. We think this is an all-weather business model. It is why we have been through a lot of volatility, particularly in the last six years, and Blackstone Inc. keeps powering ahead.

↩ Return to index

Institutional Investors are Coming Back to Direct Lending

KKR

The shift we’re seeing in the last several weeks has been the institution is kind of coming back to direct lending a bit and saying, okay, I see all these headlines about wealth, that should mean that risk/reward is getting better on new deals. And therefore, I’m going to take a fresh look at it again.

↩ Return to index

Blackstone Is the World’s Largest Investor in AI Infrastructure

Blackstone

Today, we believe Blackstone has become the largest investor in AI-related infrastructure in the world... Our total portfolio now consists of over $150 billion of data centers globally, including facilities under construction, and it continues to grow rapidly, with an additional $160 billion in prospective pipeline development.

↩ Return to index

Private Credit Has Contracted Once. Banks Have Contracted Eight Times.

Ares Management

If you look over the last 25 years, U.S. private credit has contracted once, which was over ten years ago, versus the banking sector, which has contracted eight times over the same period.

↩ Return to index

Consensus Views

Spreads, Pricing & Market Conditions

Ares Management

The current environment is offering wider spreads, higher fees and better terms. With over $150 billion of available capital and a highly diversified platform, we are well positioned to take advantage of these conditions and deploy capital at more attractive risk-adjusted returns.

Oaktree Specialty Lending (OCSL)

We are encouraged that spreads on new private credit investments have widened to SOFR plus 500 to 550 basis points, approximately 50 to 100 basis points above the 2025 tights, and supports improved forward returns. We are also seeing modest improvements in documentation and more lender-friendly structures.

BlackRock

Private credit has historically offered asset-level yields approximately 150 basis points higher than comparable weighted traditional fixed income. New activity levels have been somewhat lower in the first quarter, which is seasonal and reflects market uncertainty. But new, regular-way direct lending is being quoted 25 to 50 basis points wider than where the market was in the fourth quarter, with select opportunities over 100 basis points wider.

ARCC

Spreads on first lien originations in the Q1 increased by approximately 20 basis points quarter-over-quarter, while leverage levels declined by nearly half a turn of EBITDA.

Blue Owl Capital

As Marc mentioned earlier, the market conditions that create volatility in public markets also tend to result in spread widening and a decline in available capital across asset classes. We are beginning to see this in the origination pipeline, with spreads at least 50 basis points wider.

↩ Return to index

Deployment & Origination

Ares Management

The transaction market environment for U.S. direct lending was slower in the first quarter as industry-wide deal count and middle market M&A declined by 41% in Q1 2026 versus Q1 2025 due to impacts from the Iran war, and changing inflation and rate expectations.

↩ Return to index

Manager Strategy & Platform Growth

Ares Management

I would remind everyone that Ares experienced its two fastest periods of growth during the GFC and COVID.

Blackstone

Operating a business with virtually no net debt and no insurance liabilities means that if we need to use capital to do something at the firm level, it is available. There is no moment where we are facing any sort of liquidity crisis.

Blue Owl Capital

Direct lending represents only 37% of Blue Owl Capital Inc.’s AUM. To put this in context, real assets is now 27% of AUM, and GP strategic capital is 22%. Nearly three-quarters of equity capital we have raised over the last twelve months has been outside of direct lending.

Ares

We are not changing the playbook. Our model has been the same for decades: originate a broad funnel and apply rigorous diligence and portfolio management to drive returns. Two underappreciated hallmarks: first, selectivity — we typically have a yes rate of about 5% across private credit. Second, incumbency — roughly half of direct lending deployment comes from incumbent portfolio relationships, which makes for easier, higher-conviction underwriting. Those two together have supported our loss rates, which across private credit have been trending close to zero.

Blackstone

In the back half of last year we took two companies public in the U.S., Allegion and Medline. Those stocks are up 160%. So if you bring good companies that have real earnings momentum, the market wants that. So I would say it breaks into different buckets. It is AI beneficiary companies — obviously digital infrastructure, some of the tech companies that are going to go public this year.

↩ Return to index

Market Risks, Bubble Debate & Big Narrative

Blackstone

BDCs and credit interval funds with redemption features represent less than 10% of the U.S. non-investment-grade credit markets. Meanwhile, the Treasury Secretary, leaders of the Federal Reserve and the SEC, and the heads of numerous financial institutions have now acknowledged they do not see systemic risk from private credit.

Ares Management

While private credit has expanded at low double-digit rates over the past decade, this growth tracks in line with the growth of the $5 trillion private equity sector and other private market asset classes. Also, the percentage of our economy’s GDP funded by corporate credit — including private credit, bank C&I loans, syndicated bank loans and high yield bonds — has not changed over the past decade. This indicates that the growth of private credit is not increasing the amount of leveraged credit in the economy, and is providing more consistent funding throughout business cycles.

Brookfield

We have no software exposure and our credit portfolio is performing incredibly well.

BlackRock

Over the last five to seven years, relatively benign credit markets have lifted all boats. As the overall market environment becomes more complex, we expect to see much more dispersion in performance among private credit managers. That is an environment we like to compete in.

↩ Return to index

Wealth, Retail & 401(k)s

BlackRock

I have been doing this for 20+ years. We have seen more advancements on private markets in 401(k)s in the last 12 months than in the prior 20 years.

↩ Return to index

Partnerships & Strategic Alliances

KKR

We are seeing more and more clients wanting to do more with fewer partners is absolutely playing out, especially as they see more dispersion of results. We’re heading towards more of a K-shaped industry.

↩ Return to index

Returns & Performance

Ares Management

Over the last twelve months, we generated time-weighted returns of approximately 12% to 15% in our U.S. direct lending strategies, 15% in Alternative Credit, 12% in Opportunistic Credit, 9% in European direct lending and over 20% in APAC credit.

Blackstone

At Blackstone Inc., we have generated 9.4% net returns annually in our non-investment-grade private credit strategies since inception nearly twenty years ago — roughly double the return of the leveraged loan market.

BlackRock

HLEND is one of the best-performing non-traded BDCs in the market. It has logged a 10.4% annualized total return since inception. It is one of the only funds among major peers with positive performance in 2026.

Blue Owl Capital

Our direct lending strategy generated gross returns of 8.5% over the last twelve months and, more specifically, our largest nontraded BDC, OCIC, has delivered an attractive 9.1% annualized return over approximately five years since inception.

Blue Owl Capital

In alternative credit, gross returns of 11% over the last twelve months have compared favorably to leveraged loans as well, outperforming by more than 600 basis points.

Apollo

If you look at the 21-year-plus track record there, the return coming out of ARCC has beaten the S&P 500, the syndicated bank loan market, the high-yield bond market, and probably most anything else that people have invested in. It’s a wonderful company and a wonderful structure.

↩ Return to index

Portfolio Quality, Defaults & Non-Accruals

Ares Management

Across our direct lending portfolios, we are seeing continued near 10% EBITDA growth, loan-to-value ratios in the mid-40% range, private equity funds continue to fund new transactions with a majority in equity, and improving interest coverage ratios of 2.2x.

Ares Management

Non-accrual ratios are well below historical norms, and we are generally financing much larger, more resilient businesses today versus past vintages. The relatively small number of credit issues we see are company-specific rather than indicative of broader trends.

Blackstone

BCRED’s borrowers reported low double-digit EBITDA growth for the most recent twelve-month period, while interest coverage has improved by approximately 40% over the past two years to 2.2x as rates have declined and earnings have grown.

Carlyle

In direct lending, our current nonaccrual rate is only 1%, and our inception-to-date loss rate over 13 years is just 8 basis points per annum.

Blue Owl Capital

Our average annual loss rate remains a very low 12 basis points, an important factor in driving our continued outperformance to leveraged loan and high-yield indices.

Blue Owl Capital

LTVs have picked up modestly, incorporating moves in public comps and broad-based spread widening. As a result, LTVs are, on average, in the low forties across our platform and in the tech lending portfolio, continuing to illustrate meaningful equity cushion below our senior secured positions even in the face of compressed equity market multiples.

↩ Return to index

Fundraising & Capital Formation

KKR

A real bright spot for us this quarter was in credit where we raised $15 billion across our platform. That momentum was driven by our asset-based finance business, which represents over $90 billion of AUM today.

Ares Management

We are on track for another record year of fundraising as we raised $30 billion of gross capital in Q1, which is our highest ever first quarter and is up 46% compared to last year’s record first quarter.

Blackstone

Inflows reached $69 billion in the first quarter and nearly $250 billion over the last twelve months, reflecting broad-based strength across our fundraising channels. Total assets under management grew 12% year over year to a new record level of more than $1.3 trillion.

Brookfield

We have raised $67 billion of capital so far this year including $21 billion during the quarter.

BlackRock

Clients awarded us with $130 billion of net inflows in the first quarter. That drove 8% organic base fee growth, representing our highest first quarter in the last five years.

Blue Owl Capital

We raised $57 billion of capital over the last twelve months, our second highest capital raise since inception, and $11 billion in the first quarter, which represents approximately 14% annualized on our AUM at the end of 2025.

Carlyle

On inflows, we had a great start to the year, attracting $13 billion of new capital.

KKR

We raised $28 billion of new capital in the quarter with demand really widespread across asset classes and geographies. A real bright spot for us this quarter was in credit where we raised $15 billion across our platform. That momentum was driven by our asset-based finance business, which represents over $90 billion of AUM today.

↩ Return to index

Investment Grade Private Credit & Insurance Demand

Blackstone

In Q1, our investment-grade private credit platform grew 23% year over year to approximately $130 billion.

Blackstone

Our model generated nearly 180 basis points of excess spread on credits we placed or originated over the last twelve months for our private investment-grade-focused limited partners.

Blackstone

In the insurance channel overall, our open-architecture, multi-client approach continues to resonate, with AUM growing 18% year over year to $280 billion — up fourfold in the past five years.

Brookfield

In April, we closed the acquisition of Just Group, a leading pension risk transfer platform in the U.K. This increased total insurance assets by $40 billion and we are now heading to $200 billion and strengthens our position in one of the world’s most attractive retirement markets.

↩ Return to index

Infrastructure & Data Centers

Blue Owl Capital

In fact, just a couple of months ago, Amazon announced a $12 billion data center campus with investment from Blue Owl Capital Inc.’s digital infrastructure funds... This marks the fourth data center project above $10 billion announced in less than eighteen months.

KKR

Digital infrastructure remains a massive theme for us. We’ve deployed over $40 billion of capital KKR plus our partners across a variety of digital infrastructure themes have over a 20% gross IRR return to date in terms of that activity for us.

Blackstone

Today, we believe Blackstone has become the largest investor in AI-related infrastructure in the world... Our total portfolio now consists of over $150 billion of data centers globally, including facilities under construction, and it continues to grow rapidly, with an additional $160 billion in prospective pipeline development.

↩ Return to index

PIK

Oaktree Specialty Lending (OCSL)

OCSL continues to be prudent around the use of payment-in-kind income, with PIK representing approximately 5.5% of adjusted total investment income during the quarter. This is down from 6.3% last quarter due to the sale of athenahealth PIK preferred at our mark.

↩ Return to index

Saaspocalypse

Blackstone

If you look at our software exposure in BCRED, for instance, the average borrower put up $3 billion of equity. So they have a lot of incentives here to make these investments work.

Oaktree Specialty Lending (OCSL)

Within our performing debt portfolio, 2 investments representing 2.9% of fair value are classified as having high AI risk.

Ares Management

The study graded each company on a spectrum of risk characteristics and concluded that our software-oriented portfolio is very well positioned, with 86% of the portfolio with low risk of potential AI disruption. Approximately 13% of the portfolio was classified as medium risk... and only 1% of the portfolio was categorized as having high risk of AI disruption.

Ares

New software deals are getting done where competitive moats are evident, and spreads reflect market anxiety. We are also using this market to exit select names where conviction is lower, which contributed to the gross-to-net outcome this quarter. More broadly, think about core systems — finance, cybersecurity, order management — firms are not ripping them out; they are layering AI to enhance them, and vendors are doing the same.

Ares Management

We are not seeing any credit deterioration broadly within software, as we have only one software company on non-accrual.

KKR

So just look to level set, software represents around 7% of our AUM. In private equity, it’s a higher percentage. It’s around 15% across our credit platform in total, it’s 5%. And in Global Atlantic, that number is about 2.5% of our AUM.

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Blue Owl’s 10x Gain on SpaceX

Blue Owl Capital

Specifically at SpaceX, just as an example, we made about 10x our money on that investment. We have sold about half of it at a $1.25 trillion valuation, still holding about half of it.

↩ Return to index

Secondaries

Oaktree Specialty Lending

Secondary private transactions, whether through partial or full portfolio sales, will reshape the private credit landscape as certain market participants look to optimize their asset portfolio or satisfy liquidity demands.

↩ Return to index

Thanks again for reading. Let me know if you find these posts useful or how I can improve it for next quarter.

Share this with your Investor Relations Colleagues.

This newsletter is for education or entertainment purposes only. It should not be taken as investment advice.

The Milken conference brings together the world’s best minds to tackle some of the most urgent challenges. This year’s speakers included David Beckham, John Legend and Peyton Manning. Civilisation is in safe hands.

Alongside the minor matters of global health, education and democracy, Milken also found time for the question troubling every private markets investor:

“How do I get my money back?

Joking aside, there is a surprising amount of great content from Milken this year. I’ve pulled together a summary of my top quotes below with timestamps included for anyone who would rather not spend several hours watching private markets panels.

If you’re reading this on Outlook, most of the graphs won’t show. I’d recommend you read it online

📕 Reads of the Week

Market Updates

• Apollo: Europe is undergoing a structural shift in how companies access capital. Link

• Blackrock: Putting Private Credit Concerns in Perspective

• Powell: We don’t see any risk of contagion. Link

• FSB: Vulnerabilities in Private Credit. Link

• ILPA’s Guidance on Continuation Funds. Link (or if you’re the FT “Conflict Vehicles”)

• • 👉 Read Pitchbook’s report

Manager Updates

• Blue Owl made more than 10x on its SpaceX Investment. Link

• Apollo launches its Multi-Asset Prime Securities,

  • A structured credit product enabling access to more diversified and higher-credit-quality assets that are risk-managed every day.

  • In comparison to US BSL CLOs, the vehicle has a thicker equity tranche and is approximately 85% investment-grade rated by leading agencies, with underlying collateral that is more diverse and significantly higher rated. It was structured with investors in mind.

  • 👉 More here

BDC / Interval Fund Updates

• LibreMax Capital, a New York-based asset-backed manager, launched its first interval fund with $885 million of commitments. The fund invests in credit backed by consumer, housing, and commercial receivables.

Public BDCs are less crowded than the headlines suggest.

👉 Read the FT’s article here

Subscribe now

Milken Conference 2026

Below are my highlights from the Milken Conference last week. The link below the quote takes you directly to the video.

You’ll need to register for a free account but the amount of content is worth it.

Private credit dispersion has been abnormally compressed, not abnormally wide

“When you look back the last 10 years, the difference between a top quartile manager and a bottom quartile manager in private credit has only been about 250 basis points. So there’s been no dispersion. When you look at a typical or most other typical asset classes in credit, that’s normally about 500 basis points.”

Lee Kruter (GoldenTree Asset Management), Credit Outlook panel (04:05)

The retail money story is the real risk

“Most asset managers want to see a lot of this retirement money come into the market because it increases AUMs, it increases fees, it’s good for public company growth. I’m concerned about it... when all that money comes in, private credit, which should be an alpha product, becomes a beta product. It becomes no different than syndicated loan and fixed-income dollars... institutional investors all over the world are concerned about this. Not private credit, not about defaults, not about underwriting. They’re concerned about retail money coming into the funds that they invest with, and they do not want to see retail money invested side by side with them in institutional capital accounts because they’re concerned about deterioration.”

Ted Koenig (Monroe Capital), Private Credit Institutional Portfolio panel (29:30)

The 2022 vintage software loans never delevered

“If you look at a subset of broadly syndicated loans and software that were around in the end of 2022 and still around now, well, guess what’s happened? They never de-levered. The leverage is roughly the same as it was back then because the growth didn’t materialize in the way that they were hoping to, and if you bought them with a 40% LTV then, and equity valuations have come down, well, now you’re looking at least at 70 to 75% LTV on average.”

Brad Rogoff (Barclays), Banks Private Credit and the Future of Risk panel (42:00)

1,000 PE deals are stuck and many of them no one wants

“There were 1,000 transactions done in the PE community between 2015 and 2022 of $500 million or greater. Very few have exited. Some will find strategics, not that many. They’re all going to have to get sold. And a lot of them, nobody wants. Because the other filter for exits today, who is the buyer? Fidelity, a corporate, a CV. They only want the best.”

Jonathan Sokoloff (Leonard Green), Navigating Liquidity Challenges in Private Equity panel (09:20_

Asset-based finance is harder than direct lending, and the tourists do not realise that

“I think it’s a lot harder than private credit in the direct lending side. You need a lot of experience working with these non-bank originators, knowing how to look at the data, making sure you’re verifying your collateral... I think there’s a false sense of security sometimes that people can have when they see diversification and asset coverage on these deals... As people start to get attracted to this space, I think you’re going to see some tourists come in that probably don’t have that level of expertise.”

Jack (Fortress), ABF/ABL/Specialty Finance panel (24:08)

The scale gap, OpenAI round versus German growth funding

“The largest funding round agreed on for an OpenAI is $122 billion, right? The total collective growth funding in Germany last year was €8.4 billion.”

Hendrik Brandis (Earlybird Venture Capital), The European Opportunity panel (40:15)

Neuberger: Why the BDC Sell-Off Tells an Incomplete Story

Neuberger published a great piece on BDCs. Below are my highlights.

👉 Read the full report here

While BDC Assets Have Grown, They Remain a Small Part of the Private Credit Universe

Some investors may be missing the nuance of the private credit market, especially as the entire BDC universe, listed and non-traded combined, amounts to only about $500 billion.

Non-Traded BDCs: Redemptions Don’t Appear to Reflect Performance

Many of the larger BDC vehicles produced high single-digit returns last year, which compares favorably to a range of fixed income alternatives. Redemptions reflect other factors, including investor liquidity needs and a broader reassessment of portfolio positioning, rather than dissatisfaction with how the underlying assets have performed.

Listed BDCs Have Shown Wide Performance Dispersion Overall

👉 Read the full report here

💰Fundraising News

• Apollo closed its $6.5 billion Hybrid Value Fund III. The fund sits between traditional debt and equity, investing mainly in structured equity, preferred securities, and convertibles, and providing capital solutions for growth, acquisitions, shareholder liquidity, and balance sheet optimisation. Link

• Infranity, a Paris-based infrastructure investor, raised $2.7 billion for its Enhanced Return Debt Fund. Fifty percent of the fund’s capital will be directed towards climate solutions, with a focus on renewable energy and low carbon energy transition projects, as well as essential digital and social infrastructure. ERDF provides senior secured sub-investment-grade loans. The Article 8 fund targets an 8.5-9 percent gross IRR. More here

• S3 Capital, a New York-based private construction lender, closed its $1.3 billion Credit Fund III. The fund targets first-lien construction lending, primarily financing multifamily residential developments in supply-constrained US markets, and is expected to support approximately $4.3 billion of loan originations. More here

• Flexpoint Ford, a Chicago-based financial services investor, raised $1.1 billion for its Asset Opportunity Fund III and Insurance Opportunity Fund I. More here

• Audax Private Debt, a New York-based manager, closed its $1 billion private credit continuation vehicle led and structured by Pantheon. The vehicle relates to Audax’s 2018-vintage direct lending fund. More here

• LibreMax Capital, a New York-based asset-backed manager, launched its first interval fund with $885 million of commitments. The fund invests in private asset-backed finance and traded structured credit backed by consumer, housing and commercial receivables, and offers daily subscriptions with quarterly liquidity through repurchases.

• Corbin Capital Partners, a New York-based alternative asset manager, closed its first dedicated litigation finance fund with $342 million of commitments. The fund will finance commercial litigation, including business disputes, antitrust, mass torts, bankruptcy-related litigation, and intellectual property claims. More here

This newsletter is for educational and entertainment purposes only. It should not be taken as investment advice.

If you’re reading this on Outlook, most of the graphs won’t show. I’d recommend you read it online

📕 Reads of the Week

Market Updates

• KBRA: Q1 2026 Middle Market Report *** (Subject Piece) ***

  • Upper middle market defaults are doubling every quarter.

  • A record count of companies received a downgrade of two or more levels.

  • The decline in sales growth in the Financial Services sector was the highest among all sectors.

  • Roll-up strategies continue to experience stress, amplified by elevated leverage.

  • 👉 Read the full report here

• Peek under the Hood: An Analysis of Private Credit Loans in Top Public BDCs.

  • The all-in yield on first-lien debt, Sofr-referenced loans across ten BDCs, was 9.2% in Q4 2025, down 100 basis YoY.

  • 👉 Read Pitchbook’s report

    

• KKRs Wealth - Private Market Survey

  • 1,000 individual investors with $500K+ in investable assets, To get a clearer view into how individual investors are thinking about private markets,

  • Fewer than 1 out of 10 investors correctly identified that, 93% of U.S. companies with $50M+ in revenue are privately held.

  • 👉 Read KKR’s Wealth Survey

• Cliffwater: Ten Misconceptions About Private Credit. Link

Manager Updates

• Howard Marks calms down Andrew Ross Sorkin. Link

• BlackRock on Healthcare Growth Debt and Venture Debt.

• Lazard buys Campbell Lutyens for $575m. Link

• Brown University sells half its position in Blue Owl Capital Inc. Link

BDC / Interval Fund Updates

• Saba Announces New BDC Strategy to Address Retail Investor Liquidity Needs

  • The strategy targets entry points at discounts of 30-40% or greater to NAV,

  • Saba believes the question is not whether this space will experience significant stress, but when.

  • Read more

• Invesco: Navigating BDCs’ Growing Pains. Link

Timeline of Spread Differential of BDCs vs US IG

Source: Invesco

Partnership Updates

• ICEA LION, an East African provider of insurance and pensions, is looking to invest in pan-African private credit funds. It has a preference for managers that have strong relationships with DFIs, and are ideally on at least their second or third fund. Link

Subscribe now

Goldman Sachs on Private Credit

Goldman Sachs’ latest newsletter asks a lot of loaded questions. Hidden amongst the filler are a few genuinely interesting points. Below are my highlights.

👉 Read The Full Report Here

Redemptions Gates shouldn’t be surprised. But “should” is one of the most interesting words in the English language.

Howard Marks: “It’s absolutely true that investors participating in a fund that limits redemptions shouldn’t be surprised when full liquidity isn’t available. But “should” is one of the most interesting words in the English language. If people shouldn’t expect liquidity, why are they disappointed when they don't have it? The answer is either that they weren’t adequately informed, or they were well informed but didn’t understand or take cognizance of the terms. The risk of either of these is highest for retail investors, raising the question of whether these vehicles are suitable for the retail base.”

Software Loans won’t Jeopardize the financial system

Howard Marks: If the first-lien lender lost half their money in such a case, that wouldn’t be too bad in a diversified portfolio. If a quarter of the investments are in software and they all incur such losses, then the lender would lose half their money in a quarter of their investments, or 12.5% of the portfolio. And even if they’re levered 1:1, that would amount to a 25% loss, which still isn’t existential. There's an old saying that in times of crisis, all correlations go to one. In other words, everybody panics and sees all outcomes as equally probable and equally bad. But losing a quarter of your capital because the software industry loses most of its value isn’t abysmal. It's just bad for the fund’s investors. And it doesn't jeopardize the financial system

Loan valuations tend to adjust with a lag going into credit distress

Default incentives

Howard Marks: “And it’s important to note that in private credit, what constitutes a default—or even whether lenders will report defaults—is unclear. Lenders have an incentive to grant the borrower an extension rather than report a default, and nobody may be enforcing the reporting of defaults. Particularly for that reason, I wouldn’t put much stock in estimated default rates.”

Private credit defaults are not actually comparable to public credit

Amanda Lynam: “Some people compare defaults in private credit to defaults in public credit, but they are not actually comparable. Maintenance covenants—periodic financial metrics borrowers must meet—are much more common in private credit than in the broadly syndicated leveraged loan market. Because of that, a covenant breach in private credit can be classified as a covenant default, which counts in the default statistics. By contrast, roughly 92% of the broadly syndicated leveraged loan market is “covenant-lite”, meaning the loans don’t have regular maintenance covenants. Consequently, the first sign of default is often a distressed exchange or a missed payment, which can quickly translate into a monetary loss.”

Direct lending will be okay, but it might take a credit cycle to get there.

Howard Marks: “Only after investors have experienced a full cycle in which it swings from being too easy to borrow money to being too hard are they likely to really achieve the understanding of both the positives and the negatives that enables them to make better investment decisions the next time around. That’s ultimately a healthier investment environment, and it may be what lies ahead for direct lending and private credit more broadly. But learning that lesson isn’t always pleasant.”

Loans tagged as PIK-at-restructuring tend to see negative outcomes, but not always

Although investors often treat loans that are flagged as PIK-atrestructuring or non-accrual as reliable markers of future credit impairment, in practice the outcomes are more mixed than that characterization implies. Looking at over 3,000 loans tagged as PIK-at-restructuring, we find that 53% experienced negative outcomes, including principal writedowns, lower prices, or transition into non-accrual status, four quarters later. But over a third improved, either by exiting PIK status or increasing in price. So, while less favorable outcomes are more likely, negative outcomes aren’t a certainty.

s

Redemption requests have increased >6x over the last two quarters

👉 Read The Full Report Here

💰Fundraising News

Silver Rock Capital Partners, a New York-based alternative credit manager originally born from Michael Milken’s family office, raised $4 billion for its Tactical Allocation Strategy. The strategy provides capital solutions across corporate and real asset lending, targeting large borrowers globally. More here

Primary Wave Music, a music publisher and partner of Brookfield, closed its $2.2 billion Primary Wave Music IP Fund 4. The fund acquires music to generate consistent and long-term capital appreciation. To date, Fund 4 has invested $700 million in over 65 single-artist catalogs, including The Notorious B.I.G., Village People, and Neil Sedaka. More here

Apollo closed its $1.9 billion Accord Fund VII. The fund is the latest vintage of the Firm’s flagship Accord Dislocation Series, which has raised $11.6 billion since inception in 2017. More here

StepStone closed its $1.6 billion Credit Opportunities Fund II. The fund will invest across the private credit spectrum predominantly through secondaries and co-investment transactions. More here

Crescent Cove, a San Francisco-based manager, closed its $446 million Crescent Cove Fund IV. The fund lends to high-growth technology businesses, including businesses operating in defense tech, autonomous driving, AI infrastructure, and cybersecurity. More here

AllianzGI announced the first close of its $270 million Asia Pacific Infrastructure Credit Fund. The Fund provides secured loans to infrastructure and infrastructure‑like businesses predominantly across South and Southeast Asia. It is focused on energy transition, power, digital infrastructure, transportation and logistics, and environmental infrastructure. The fund is expected to hold its final close in 2027. More here

Hamilton Lane launched its Credit Income Fund, raising $350 million in commitments. The fund will invest in a portfolio of middle‑market senior loans, sourced through Hamilton Lane’s global multi‑manager platform rather than index‑based exposure. More here

This newsletter is for educational and entertainment purposes only. It should not be taken as investment advice.

If you’re reading this on Outlook, most of the graphs won’t show. I’d recommend you read it online

📕 Reads of the Week

Market Updates

1. Coller Capital: Why Debt Levels Matter for Secondary Underwriting.

   • Coller analysed 1,789 PE exits to find out.

   • Loss rates rise to more than 30% when leverage increases more than 6x.

     

2. FT: Private credit won’t spark the next financial crisis. Link

3. Goldman Sachs: Taking the long term view on private credit. Link

4. Pemberton: Insights into European Private Credit. Link

5. Ares: Secondaries Take the Spotlight. Link

   

Partnership Updates

• KKR and Capital Group are launching a public–private credit fund in Asia later this year. Link

• MUFG is looking for partners to share risk. The bank ‌is aiming to limit funding through its own balance sheet so as not to bear the risk of financing deals as a wave of leveraged buyouts sweeps Japanese ​firms. Link

Manager Updates

• The Big Picture: Outlook from the Co-CEOs at Oaktree Conference 2026. Link

• Saba Capital to raise $1 billion to buy souring private credit funds. Link

• Pimco has lent more than $10 billion to state-backed and government borrowers in the Gulf, since the conflict began on Feb. 28. Link

• Lenders taking the keys on Medallia. Link

BDC / Interval Fund Updates

• Private credit BDCs trade at the deepest NAV discounts in over five years. The median listed BDC traded at a discount of 26% to NAV, the steepest gap since October 2020. Link

• JunkBondInvestor.Not all BDC debt is created equal.

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Sona AM: An Honest Assessment

Sona Asset Management’s honest assessment of private credit is well worth a read. I’ve pulled out a few of my favourite lines below.

👉 Read The Full Assessment Here.

Public scrutiny of private credit is now in full force and has almost certainly never been greater. Negative headlines are dominating the narrative: heavy exposure to software companies, redemptions and gating, criticism of portfolio marks, and banks marking down collateral posted by private credit firms.

SEMI-LIQUID STRUCTURES EXIST FOR A REASON

The creation of semi-liquid private credit structures was an innovation which expanded the market. There is no ambiguity as investors allocate to these vehicles with full knowledge of the terms - both on the way in and, critically, on the way out.

None of this makes the current moment comfortable for managers. Each redemption cap risks reinforcing a negative sentiment spiral at a time when the industry is already under scrutiny.

There are also legitimate questions surrounding the handful of managers who have chosen to honour redemptions above the standard 5% threshold - arguably rewarding first-mover behaviour.

Private credit is illiquid. That is known, priced, and agreed upon at the point of commitment. Sudden, large-scale withdrawals would compromise a fund's stability and potentially require premature liquidation of illiquid assets at a loss. Redemption gates are designed to prevent exactly that. They exist to protect the investors who stay just as much as they manage the investors who redeem.

AI AND PRIVATE CREDIT - LIMITED UPDSIDE, REAL DOWNSIDE

Private credit has a serious concentration problem in precisely the sectors AI is targeting most aggressively. Software is the clearest example.

These businesses were seen as predictable cash flow machines, and lenders piled in accordingly. Valuations reflected that enthusiasm, with median deal multiples reaching more than 15x annualised recurring revenue in 2026, layered with substantial debt. Those multiples have since collapsed to around 5x.

Estimates put average software exposure north of 20% of assets, with some funds potentially approaching 40%.

Credit investing is inherently asymmetric. Like equities, the worst outcome is a total loss. Unlike equities, the best outcome is par – investors get their money back plus coupon income. There is no participation in the upside

AN INDUSTRY BUILT TO ORIGINATE, NOT MANAGE.

The private credit industry was designed to originate. Its fee structures, staffing models, GP incentives, and fundraising narratives are all oriented around deployment. The implicit assumption embedded in the business model is that the most important decisions are made at origination and that if underwriting is done correctly, monitoring and management can be largely mechanical.

We believe this assumption is wrong. As a result, many private credit portfolios are not constructed; rather, they emerge as the accumulation of individual deployments.

A genuine portfolio management culture requires continuous reassessment of underlying assumptions. It means regularly asking whether the thesis on which an investment was underwritten remains valid; whether the competitive position of the borrower has changed; and whether covenant levels still reflect the underlying risk. It requires the willingness to mark assets to economic reality, to initiate difficult conversations with sponsors, and - crucially – the willingness and ability to walk away from an investment when circumstances call for it. This doesn’t apply to all managers.

However, there is clear evidence that portfolio management standards have deteriorated in parts of the market.

Why would a well-managed portfolio manager tolerate 40–50% exposure to a single sector – software – that was already showing signs of strain and emerging AI-driven competitive pressure? The answer often lies in incentive structures: managers who deployed capital most aggressively were rewarded with the highest fees and the largest subsequent fundraises.

This contrasts with public markets, where we would argue there is far greater discipline in recognising and exiting a flawed underwriting decision. As the lines between public and private credit increasingly blur, the managers who succeed will be those able not only to originate investments, but also to construct portfolios and actively manage risk - including exiting bad positions when necessary. Experience, or the lack of it, reinforces this problem.

Private credit has long been perceived as operating in a “golden age”, but cycles eventually turn. Managing a concentrated, illiquid portfolio through a credit cycle requires a fundamentally different skill set. The industry has scaled its origination infrastructure dramatically, and portfolio management capabilities, in many cases, have not kept pace.

A FLOOD OF CAPITAL HAS COMPRESSED SPREADS

The most transformative structural development in private credit over the past five years has been the influx of insurance capital, and the implications for the risk-return profile of the asset class have been profound.

According to Barclays, US life insurers’ overall general account investments are $6.1tn. They estimate that the sector’s allocation to private letter ratings – the best proxy for private credit – is about 10% (this includes some rated middle market CLOs and other similar exposures in the alternatives bucket).

Notably, they suggest that private credit assets in the US life insurance industry grew 21% in 2025, about twice the rate of growth of the overall general account.

The problem is not that insurers invest in private credit. Rather, it’s the capital dynamics they introduce. Insurance capital faces permanent deployment pressure - a liability structure that must continuously generate matching assets. This dynamic closely resembles the GP deployment incentive problem described earlier but operates at a scale that dwarfs any individual fund.

The result has been persistent spread compression precisely at a point in the cycle when spreads should be widening to reflect higher risk. Insurance capital has lowered the cost of private credit financing for borrowers at a time when credit quality, documentation standards, and macro uncertainty all point to the need for a greater risk premium.

👉 Read Sona’s Assessment here.

💰Fundraising News

Carlyle reportedly raisied $1.5 billion for its Asset-Backed Income Fund. More here

Ashmore, the London-based specialist emerging markets manager, is working with the European Bank for Reconstruction and Development to develop a $500 million private debt strategy. More here

Founders First Capital Partners, a US early-stage lender, announced a first close of $12 million for Change Catalyst Fund II. The fund invests in growing service-based businesses, generally with $1–10 million in revenue with commercial and government customers. While operating nationally, the fund emphasizes key regions of excellence including California, Illinois, Minnesota, Pennsylvania, New Jersey, New York, and the Washington, D.C. metro area. More here

This newsletter is for educational and entertainment purposes only. It should not be taken as investment advice.

If you’re reading this on Outlook, most of the graphs won’t show. I’d recommend you read it online

📕 Reads of the Week

Market Updates

• Golub: U.S. Middle Market Remained Resilient in Q1 2026. Link

• Brookfield: Why real asset lending is built for today’s environment. Link

Real Estate Credit Delinquencies Well Off the Highs

Manager Updates

• Nest, the largest UK workplace pension scheme, awarded Crescent Capital £450 million as part of a new direct lending mandate. Crescent will originate senior secured loans directly to US middle market companies. Nest’s plans to allocate up to 30% of its AUM to private markets by 2030. Link

• Blue Owl recorded its strongest share price performance since late 2022. The firm’s stock climbed roughly 17% over two days. Link

• Sycamore Tree Capital Launches Credit Secondaries Investment Platform. Link

“Soccer” Special

• Eagle Point provides a $50 million “asset-backed” loan to Sports Illustrated secured against World Cup tickets. The loan has a 100% LTV and targets mid-teens returns.

• Analysis of Ares Management’s $500 million investment in Chelsea Football Club.

  • The element that poses the greatest existential risk to the Chelsea Football Club ownership structure is its PIK mechanism.

  • At an annual compounding rate of roughly 12% to 13%, the initial £410.2 million principal will double in approximately six years.

  • If no cash repayments are initiated before the August 2033 maturity date, the total cost required to service, satisfy, and retire the preferred equity agreement will vastly exceed £850 million.

  • Read the full analysis here

Partnership Updates

• Sumitomo Mitsui Financial Group and Nippon Life Insurance are in discussions toward launching a $3 billion private credit partnership. Link

BDC / Interval Fund Updates

NAV BDC sponsors have returned more than $7.4 billion to investors in Q1

• Blue Owl Capital Corporation II declared a Q2 distribution of 5% of NAV. Following this, OBDC II will have returned 35% of NAV since March 2025. Link

• Goldman Sachs Nontraded BDC raised a $750 million bond. Link

• JPMorgan: Today’s elevated redemption requests appear to be driven more by sentiment than a broad-based deterioration in market fundamentals because credit fundamentals remain resilient. Link

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Ares: Let’s talk about the F word.

Ares in the Gaps is out, and as always, it’s worth reading in full (Link).

My highlight is the section on fraud, below with a few excerpts.

Recent reports of fraud in the market have left many with the impression that fraud can happen anytime, anywhere, to anyone...

And there’s precious little you can do about it.

That is just not true.

Fraud in financial markets is nothing new, neither are the means by which fraud is carried out. Fraud is a crime of opportunity. In that sense, fraud is not much different from home burglary, and neither are the perpetrators. Vulnerabilities and gaps in security are identified, often cultivated, and ultimately exploited.

Most victims don’t realize they are as vulnerable as they are.

Mitigating fraud is largely about minimizing both the means and opportunity.

Because one can’t fully eliminate the risk, it’s also about detecting it as quickly as possible. It’s about

• Locking the front door,

• Installing security cameras and alarm systems

• Placing a trained guard dog in the house for good measure.

It’s also about avoiding the neighbourhoods known for such crimes.

There are certain sectors in the ABF market that almost inherently create both means and opportunity for would-be fraudsters. Trade finance, high-rate consumer lending, life settlements and many corners within litigation finance. These sectors have intrinsic features that inhibit or prevent investors from mitigating fraud risk.

Consequently, they tend to be bad neighborhoods.

💰Fundraising News

Adams Street Partners, a Chicago-based manager, closed its $7.5 billion Private Credit III fund. The fund provides senior financing to sponsor-backed middle-market companies. PC III’s existing portfolio has a loan-to-value ratio below 40% and an average debt multiple of ~5x. More here

StepStone closed a $3.1 billion structured solutions vehicle for private market secondaries. Ares Management Alternative Credit will serve as the primary capital provider to the vehicle, with Barings Portfolio Finance providing a substantial portion of the vehicle's rated financing. More here

Comvest Partners, a Florida-based manager, rasied $2.6 billion for its Credit Partners VII. The strategy provides senior secured loans to US mid-market companies, with the ability to do transactions as large as $300 million. The invests in sponsored and non-sponsored businesses within target industries that include healthcare services, financial services, speciality finance, business and technology services, consumer and retail, and industrials. More here and here.

CapitaLand, a Singapore-based manager, closed its $320 million Asia Pacific Credit Program II. The fund invests in senior secured real estate credit across Asia Pacific. More here

This newsletter is for educational and entertainment purposes only. It should not be taken as investment advice.

If you’re reading this on Outlook, most of the graphs won’t show. I’d recommend you read it online

📕 Reads of the Week

Fundraising Updates

Last week’s post was tough reading but thankfully April has roared back with managers raising nearly $50 billion in first two weeks. For context, there was only $89 billion raised in the whole of Q1. Below with summary, see the full details here.

Manager Updates

• 🎧Promote Giving - A New Model for Performance-Driven Giving. Link

• Vista Credit is launching a Tactical Credit Fund to focus on software businesses that could withstand AI-driven pressure. Link

Market Updates

• 🎧Alan Waxman, CEO of Sixth Street, on the History and Future of Private Capital. Link

• Blackstone: Today's market looks nothing like 2008

  • Banks then were levered 25 to 40 times, primarily funded by short term deposits and commercial paper.

  • The underlying assets were 90%+ loan-to-value and layered on top were highly complex derivatives that obscured the risk.

  • This is nothing like what is happening today.

  • Business development companies typically operate with less than 1x leverage, lend at roughly 40% loan-to-value to corporate borrowers, and use structures that don’t rely on deposits or overnight capital.

  • Read more here

Partnership Updates

• King Street, the New York-based manager, signed an MoU for PIF to be an anchor investor in a new private credit fund focused on Saudi Arabia and the wider MENA region. Link

• Tikehau, the Paris-based alt manager, announced a joint venture with Amova Asset Management, one of Asia’s largest asset managers. Tikehau Amova Investment Management will be focused on developing Asia-focused private assets investment strategies for global distribution. The joint venture will include offering private credit focused on Asia. Link

BDC / Interval Fund Updates

• Moody's Reaffirms Blue Owl’s OCIC rating but changes outlook to negative.

  • The change in outlook to negative is in response to OCIC’s significantly higher-than-peer redemption requests in the first quarter.

  • OCIC reported net debt-to-equity leverage of 0.8x, which is lower than the peer median and $11 billion in cash, revolver capacity and Level 2 investments, which together could more than cover the full first-quarter redemption request.

  • In addition, OCIC has relatively limited unsecured debt maturities coming due over the next 12 months, consisting of $350 million in senior unsecured notes due in September and $500 million due in February 2027.

  • Deterioration in leverage or liquidity could weaken the company’s relative strengths at its Baa2 rating, which is at the top of the BDC peer group.

  • More here

The Rise of the Factory Model

Alan Waxman, co-founder and CEO of Sixth Street, appeared on Invest Like the Best. Below are my key highlights.

👉Listen to the interview here.

Everything that is covered in the media is just talking about the symptoms and not actually getting to the root cause.

The SMA was a symptom.

The wealth system is a symptom.

When you think about some of the stuff you see in stuck private assets, where there’s so many assets around the world in private real estate, private infrastructure, private equity, that literally were companies or assets that were bought in post-COVID, in sort of ‘20, ‘21, early ‘22 – paid way too much. They’re stuck assets.

All that stuff is symptoms.

The root cause of this is the change of behavior patterns of the factory model. That’s the root cause.

The Rise of the Factory Model

So the way that we define the factory model in our industry is there’s two parts to it and then there’s an output.

1. First part is the industrialization of the fundraising process. Say liability gathering. Literally raising as much capital as you possibly can, as fast as you can. So that’s the industrialization of the liability side of the fundraising side. That comes first.

2. And then what comes second is then, as a result of that, the industrialization of the asset side. So think about investing. If you’re on an investment team and all of a sudden your firm has a lot of money to invest, and it’s just sitting there and maybe there’s a timestamp on it. All of a sudden your behavior has to start to change, because you have to deploy that money much quicker.

And what’s the best way to raise a lot of capital quickly?

Make it very simple.

Make it very narrow, because if it’s wide, that’s too hard to explain.

So you want to make it as narrow as possible and you’re also willing to take – let’s say, make concessions on the type of capital you raise. Meaning maybe it’s got a term where they can ask for your money back.

When people hear this, they’re going to think I’m only talking about the bigger firms

But it filtered down to mid-sized firms, smaller firms for a whole bunch of reasons, but this whole factory model behavior started to reveal itself in 2018…

The story of the factory model starts to correspond with FRE multiples. Our industry started trading between 10 to 15 times FRE in early 2010s. In 2018, when all this started, it stepped up to – call it 15 to 20 times, obviously depends on the comp set. Before this current moment, we’re at 25 to 30 times plus. That’s where it is

You know when you see it.

You can see it in the underwriting. We're in a bunch of different asset classes. You can see it, particularly if you're a fixed income investor or credit investor because you have capped upside. There's terms you just don't give. A lot of those terms have been given.

You should not do those terms, because it’s all good when you’re in a procyclical environment. But if you have capped upside and you’re earning a 10% return and all the collateral that your 10% is based on can literally be taken out of your collateral package overnight.

Or for that 10% return, you can be levered up because let’s say there’s an AI disruption and some software company needs to reposition their business and they can basically lever you up. So you go from 50% loan to value to 120% loan to value.

Those are just things that you shouldn’t do for a 10% return.

There’s No Such Thing as Semi-Liquid

Some of the factory models that are out there have raised capital from the wealth channel in irresponsible ways. So first of all, in general, you’re taking an illiquid asset and you’re giving investors an ability to get their money back quarterly. They say semi-liquid. There’s no semi-liquid, okay, there’s no such thing as semi-liquid. Anyone that’s an investor that’s been through a bunch of cycles – there’s liquid, and then there’s illiquid.

Because again, going back to the history of the wealth channel or individuals or retail, the one thing we know, it’s very procyclical. We’re in a procyclical environment. It’s easy to raise money. And when you’re not, and when there’s problems or dislocation like there is today, they want their money back. So you basically had mismatching of illiquid assets and liabilities. So that’s one part of it.

The second thing is that they would raise these very narrow – what I mean by narrow is it’s just direct lending. So it’s not like you can invest in direct lending and real estate and infrastructure or in asset-based finance. No, no, it’s just very narrow. Just direct lending or just asset-based finance or just this strategy. That’s a narrow strategy.

And maybe that’s okay if you raise the right amount of capital. But if you raise an unlimited amount of capital where your investing is dictated, not on good investments in the market, but basically dictated by how much money you can raise. There’s never a governor on how much money to raise.

And the thing about these wealth vehicles, when they raise it, they have to invest it right away. We call it inflow investing. They have to invest it right away. So they raise as much money as they can, and if they don’t invest it right away, it dilutes the return of that vehicle.

The best answer is a market mechanism, like you have with institutional investors.

If you do irresponsible things or you're not a good investor, if you change your business model, they're going to punish you by not giving you money for your next fund.

What’s your clarity of purpose?

Does that stay consistent over time?

Is your clarity of purpose to raise a bunch of liabilities or is it to drive good returns for investors?

Maybe it’s both. Maybe you can do that. Maybe some firms can do that.

But, what is your clarity of purpose is something we talk a lot about at Sixth Street, is that if you look at all the great companies that have been around for a long time, they got one thing right. They never forgot what their purpose was, which is to serve their customers.

It’s enticing to raise a bunch of money. It’s enticing once you raise it to invest a lot of money. That doesn’t mean that you have to do it.

Sixth Street, we’re a multi-strategy private capital firm. We do a bunch of things. One of the things we do is direct lending. We have one of the best track records. We’ve been here longer than – in direct lending, I started the direct lending business in 2001 when there was only two of us.

So we’ve watched this and we could have gone to the wealth channel and raised all the same vehicles because of our track record. And we have – you know how many dollars of perpetual private BDCs we have? Exactly zero. It’s not that we couldn’t have. We just didn’t think it was the right thing and we didn’t think it was consistent with our clarity of purpose, and that’s why we didn’t do it.

It’s easy to get FOMO.

I just think you just got to block out that noise and it always comes back to first principles of clarity of purpose. What are your values? And if you stay consistent with that, judging by the best companies that have been around for a long time, that’s your pathway to building a great company that’s going to be here for a long time, not short-termism.

👉Listen to the interview here

Four Reasons Why Howard Thinks Oaktree will Outperform

Superior investing doesn’t result from omniscience and perfect decision making, but rather from decisions that are better than those made by others.

1. We’ve been investors in high yield bonds and broadly syndicated loans since their inception decades ago, but we never went overboard in private credit. As I mentioned a year ago in my memo, Gimme Credit, whereas for a few years the most popular question has been “can we talk about private credit?” my rejoinder has been “can we talk about credit?” We insisted there was a place in portfolios for both private credit and liquid credit.

2. We never pursued direct lending to the same extent as others. At the beginning of its existence in the early 2010s, we thought the returns from direct lending, while high in relative terms, were low in the absolute. And later, we thought the superiority in pricing and terms had been competed away by the newly arrived managers and capital, rendering it average in attractiveness, not exceptional. Private credit represents well under half of Oaktree’s performing credit assets, and direct lending represents less than half of our private credit book. Thus, direct lending is only around 20% of Oaktree’s investments in performing credit and less than 15% of our overall assets under management.

3. Since (a) we expanded our assets far less than many other alternative credit managers (Oaktree’s AUM “only” doubled over the last decade) and (b) direct lending was a limited part of our AUM growth, we’ve felt less pressure to invest quickly or compromise our standards. That meant we could remain highly selective, limiting the amount invested in software and restricting it to what we believe to be the best opportunities. Most of Brookfield/Oaktree’s private credit funds operate outside of direct lending and thus have only limited holdings in software.

4. 80% of Oaktree’s total investment in private credit is on behalf of institutional clients, meaning very little was placed with the public. While the leading managers of public direct lending vehicles have $40-50 billion or more there, we have just over $10 billion.

👉 Read Howard’s full memo here

💰Fundraising News

Opportunistic

Blackstone closed its $10 billion Capital Opportunities Fund V, its largest opportunistic credit fund raised to date. Blackstone’s opportunistic credit strategy has generated a 13% net IRR since inception in 2007. More here

Ares closed its $9.8 billion Special Opportunities Fund III. The fund provides private debt, equity and hybrid solutions that fill the gap between for-control private equity and more traditional corporate lending, while also opportunistically purchasing stressed public corporate credits. Since inception, the strategy has deployed over $17 billion and generated over $11 billion of realized proceed. More here

Blue Owl closes its $2.9 billion Asset Special Opportunities Fund IX. The fund employs a flexible mandate with the ability to allocate dynamically throughout changing market conditions. More here

Direct Lending

Guggenheim Investments, a New York-based manager, closed its $8.4 billion Private Debt Fund IV. The fund sources first lien senior secured loans in both sponsor-backed and non-sponsor-backed companies within the US core middle market. Guggenheim currently serves as the lead investor on over 90% of the capital invested by PDF IV and is the sole investor on 35% of invested capital. More here

Real Estate

ICG Real Estate, the real estate division of London-based manager, ICG, closed its $1.6 billion Opportunistic Real Estate strategy. The Portfolio comprises of approximately 100 assets on long-term, inflation-linked leases. It offers investors access to opportunistic returns within the European Industrial and Logistics sector, with assets typically sourced off-market through non-traditional routes, including proprietary sale-and-leaseback transactions with corporates. More here

Secondaries

Antares Capital, a London-based manager, closed its second continuation vehicle with over $1.7 billion in commitments. The transaction was led by Ares Credit Secondaries funds. The fund was established to purchase assets from a closed-end private credit fund comprising over 300 underlying first-lien, floating-rate loans. More here

Arcmont Asset Management, a London-based private credit manager, closed its $2.5 billion credit continuation vehicle. The transaction was led by Ares Credit Secondaries. The CV acquired a portfolio of largely first-lien senior secured loans from Arcmont’s 2019 vintage, Direct Lending Fund III. More here

Other

17Capital, a London-based NAV lender, closed its $7.5 billion Credit Fund 2. According to PitchBook, Credit Fund 2 represents the largest NAV loan fundraise. The fund provides NAV loans to well-established private equity funds across the U.S. and Europe. Since launching its dedicated NAV loan program in 2020, 17Capital has deployed more than $7.5 billion across 30 NAV loans, including $2 billion already deployed from Credit Fund 2. More here

OIC, a New York-based manager, closed its $1.6 billion Credit Opportunities Fund IV. The infrastructure fund invests in middle-market infrastructure. OIC’s target investment sectors include transportation, storage & logistics, digital infrastructure, renewable power and fuels, waste & recycling, energy efficiency and other infrastructure. More here

Mercer announced its $3.8 billion Private Investment Partners VIII. The fund offers investors access to a spectrum of global private assets across private equity, private debt, infrastructure, and real estate. PIP consists of a US vehicle for US investors (Onshore) and a Luxembourg vehicle for non-US investors (Offshore). The funds invest across primaries, co-investments and secondary opportunities. More here

Breakwall Capital, a New York firm specializing in the energy industry, and Vitol, a leader in energy and commodities, closed their Valor Mining Credit Partners II. The fund makes structured credit investments in mining and critical minerals companies. It primarily targets event-driven financing opportunities, including debt refinancing, acquisition financing, and development capital. In less than three years, the Valor energy credit franchise has invested over $2.1 billion to support the upstream oil & gas, mining, and critical minerals sectors. More here

This newsletter is for educational and entertainment purposes only. It should not be taken as investment advice.

If you’re reading this on Outlook, most of the graphs won’t show. I’d recommend you read it online

Private Credit’s Tough Reality

There’s no sugar-coating it. The fundraising environment has taken a noticeable turn for the worse. Fewer funds came to market, and those that did were smaller, with average fund size down nearly 10% year-on-year.

• Number of funds raised: 51 (DOWN 18% YoY)

• Total amount raised: $89 billion (DOWN 25% YoY)

• Number of Countries where funds were raised: 11 (DOWN 21% YoY)

Lending money isn’t hard. Getting repaid can be hard. The managers who understood that during the very good times are the ones who will stand out now in this less certain environment.

TCW: Looking Beyond Cockroaches and Canaries

Asia is the Growth Story 🌎

Asian private credit fundraising surged, with fundraising growing 10x year-on-year. While KKR’s latest $2.5bn Asia fund accounted for half of this, a growing number of managers are expanding their presence in the region. This momentum is being reinforced by partnerships, such as Citigroup’s collaboration with Blackstone, Blue Owl, and KKR.

Europe’s 70% decline is exaggerated by the absence of mega-funds this quarter. Last year, Ares raised $17.6 billion for its Ares Capital Europe V. Excluding this, the decline is closer to 40%

We’re taking this strategy global. When you think about why we were just in Japan, when you think about the Industrial Renaissance and that part of the globe, Asia Pac, along with how we’re focused on Europe, the answer to your question, big picture, is we’re going to take a very successful strategy of integrating origination to every aspect of our business.

Apollo Q4 earnings

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The Five Largest Funds Raised 60% of the Capital…

1. Churchill Asset Management’s $16 billion Senior Loan Strategy

2. GSAM’s $13 billion Mezzanine Partners IX

3. Benefit Street Partners $10 billion Real Estate Opportunistic Debt Fund II

4. Ares $7.1 billion Credit Secondaries fund

5. Monroe Capital $6.1 billion Private Credit Fund V

The Middle is Getting Smaller…

👉 This is the single most important takeaway this quarter: capital is concentrating at the top.

The average fund size for the top 5 managers is relatively stable:

• $10.6bn (2024)

• $11.0bn (2025)

• $9.7bn (2026).

The mega-managers raise the same amount of capital regardless of market conditions.

Everyone below these managers is under pressure. The average fund size for these dropped from $1.1bn to $0.9bn, and total capital raised has halved—from $64.3bn in Q1 2025 to $32.3bn in Q1 2026.

This is where the real dislocation lies. If you are a GP ranked outside the top 5, your available LP capital pool shrank by roughly 50% in twelve months.

📕Nick’s Top Articles for Q1

1. Q4 2025 Alt Manager Earnings: What the Biggest Firms Are Talking About

2. The Rise of Credit Secondaries

3. Three Takes on Blue Owl’s OBDC II

4. The Evolution of Private Credit in 2026

5. Howard Marks: Mistakes cause mispricings

Opportunistic Overtakes Direct Lending

Opportunistic capital surpassed direct lending for the first time on record with fundraising doubling over the last two years. Not only did they raise more, Opportunistic funds were also 70% larger than other strategies. Goldman’s $13bn mezzanine fund and Benefit Street’s $10bn CRE opportunistic fund were the standout funds.

For more on this trend, see Dispersion Is Back

Credit secondaries volume has set new highs every year post 2020. Credit secondaries fundraising tripled year-on-year, with Ares $7 billion raise leading the way.

For more on this trend, see The State of Private Credit Secondaries.

Direct Lending’s decline continues with 40% fewer funds raised YoY. Direct Lending accounted for 33% of new fundraising vs 66% in 2024. Churchill’s $16bn fund shows that mega-managers can still raise. The problem is for mid-market managers ($500m-$5bn). These funds raised 60% less YoY.

🏆 Nick’s Funds of the Quarter

During “risk off” periods, when risk premiums are attractive, both capital and liquidity leave the system. This is wrong-way risk for both the capital and manager

Sixth Street

🗄️ Brigade Capital’s $1 Billion Inaugural Private Credit Fund

In contrast to broader trends, Brigade raised its inaugural direct lending private credit fund. The New York-based manager will finance lower-to-middle market and non-sponsored borrowers.

⛏️ Orion Resource Partners’ $2.2 billion Mine Finance Fund IV

Orion, a New York-based manager, completed its largest ever fundraise. The fund finances the construction and acquisition of strategic metals and critical mineral assets. The fund is already 61% committed across a portfolio of projects, spanning North and South America, Europe, Australasia, and Africa.

🦒 XSML Capital’s $142 million African Rivers Fund IV

The fund finances SMEs in African frontier markets with loan sizes between $300,000 to $10 million. Investments to date are concentrated in the DRC (47%), Angola (22%), Uganda (17%), and Zambia (14%), across manufacturing, retail, beverages, food processing, and the pharmaceutical sector.

This newsletter is for educational or entertainment purposes only. It should not be taken as investment advice.

If you’re reading this on Outlook, most of the graphs won’t show. I’d recommend you read it online

📕 Reads of the Week

Manager Updates

• Partners Capital: Redemption pressure is generating opportunities within secondaries to acquire performing loans at material discounts. Link

• Dell Family Office Hunts Private Credit ‘Gems’ Amid Turmoil. Link

• CVC Credit Perspectives. Link

• Carlyle and Andalusian Credit Company launch partnership to invest in middle-market loan assets and other cash-flow-producing private credit interests. Link

Market Updates

• KKR: Thoughts From Japan Link

• Pemberton: Separating Signal from Noise and Why European Private is Credit Different Link

• Tikehau: A Search For Harmony. Link

BDC / Interval Fund Updates

• JPMorgan launches Public and Private Credit interval fund with 7.5% quarterly repurchase capacity.😉 Link

• Moody's Ratings downgrades FS KKR Capital Corp.

  • PIK income was 14.7% of FSK's total investment, significantly higher than the peer median of 6.3%.

  • FSK's debt-to-equity leverage increased to 1.30x compared to 1.11x.

  • The stable outlook reflects FSK's sufficient liquidity position, well-laddered debt maturities, and low absolute leverage on a debt-to-equity basis.

  • They expect its asset quality to remain challenged, driving more volatile profitability than peers.

  • More here

• Tikehau: Liquidity and Gating. Link

Mistakes cause mispricings.

Howard Marks shares his reflections on themes from Oaktree’s recent client conference. I’d recommend listening to his comments on buying from sellers who are making mistakes (10:36)

👉Listen to the interview here

Market efficiency means that every security is awarded a price, and if you buy it at that price, you get a fair risk-adjusted return. No more, no less…

We’re not happy with that. We want to get excess return, returns that are more than commensurate with risk. To do that, you have to buy assets, not at fair prices, but at unfair prices. We want to buy things for less than they’re worth. That requires cooperation for someone who’s willing to sell something for less than it’s worth.

And who volunteers for that job?

We want to buy from sellers who are making mistakes. And a lot of these in the history of Oaktree have also stemmed from people who bought companies and made mistakes. They overestimated the growth potential, overestimated the solidity of the earnings, overestimated the ability to survive or thrive in a negative economic environment, levered up too much, and eventually became distressed as a result.

What are some of the sources of the bargains we seek?

• Complexity - People don’t understand something, and they’re scared by its complexity.

• Difficult to source. - Some of these things are held deep in portfolios in the bowels of institutions, and we have to go find them and get somebody to sell them to us.

• Supply, demand - There are a lot of people who want to sell something at a given point in time, fewer people want to buy it, that pushes the price down, hopefully to unreasonably low levels where we can pick it up.

• Technical reasons - There was a rule for a while that if a bond was downgraded below investment grade, certain holders had to sell it. Now, they might not want to sell it if the price is unreasonably low, but the rules require them to do so. That’s technical.

In the last few months, the tide has been going out, especially in areas like private credit and we start to see which structures may have been unwise.We actually haven’t had many defaults yet, so we haven’t had a chance yet to see who made bad loans. That’s coming too.

We’re ready for shakiness in ‘26.

And I think that when the bloom is off the rose and people start thinking about the negatives and not just the positives, and when they start to reflect risk aversion and not just FOMO, I think we’ll get much better buying opportunities in the months ahead than we did in the months just passed.

👉Listen to the interview here

HALO 🏭 🚄

Hard Assets, Low Obsolescence

Asset light is out. Hard assets are in. Factories, fiber and railroads are the new celebrities of the investing world. Like most inflections, the trend has even earned its own acronym. HALO (Hard Assets, Low Obsolescence)

👉Read Apollo’s report here

HALO owes its existence to the growing angst surrounding increasingly powerful AI models and their potential to disrupt large swaths of the economy. Enterprise SaaS companies, whose revenue multiples have collapsed by 38% over the past six months, have borne the brunt of these obsolescence fears. But the wave of disruption anxiety has not stopped there; it has spread to a range of labor-intensive professions, including accounting, insurance brokerage and wealth advisory

Enterprise SaaS companies have collapsed by 38% over the past six months

The market is currently expecting $4 trillion of digital infrastructure investment by 2030

• For this investment to deliver an acceptable return, AI revenue must climb to $2 trillion by 2030.

• This is a 40x increase vs 2025 AI Revenue.

• Some of this will come from GPU-accelerated improvements to existing software workloads, like better advertising models and recommendation engines.

• But the bulk will have to come from genuinely new AI-driven products and services

$2 trillion of revenue is equal to the total size of the global enterprise software and online advertising markets combined.

• Admittedly, these industries do not have the ambition of AI which hopes to automate a large portion of the $60 trillion in global knowledge workforce compensation.

• Through that lens, $2 trillion represents only ~3% penetration.

Balance sheet capacity is becoming a gating factor across the AI ecosystem

• OpenAI finalized a $100 billion round, after previously raising a record-breaking $40 billion

• Apollo is most focused on how this multi-trillion-dollar investment in infrastructure will be financed and who ultimately bears the balance sheet risk if revenue realization lags.

• The faster AI-driven disruption converts into recurring revenue and free cash flow, the more self-funding the infrastructure buildout becomes.

👉Read Apollo’s report here

Subscribe now

💰Fundraising News

Pollen Street, a London-based manager, raised $2.1 billion for its Credit Fund IV. The asset-backed lender finances everything from building homes, funding SMEs, and vehicle financing. It provides predominantly senior secured loans to non-bank lenders, leasing businesses, and technology companies. More here and here

Treville Capital Management, a US-based manager, closed its $500 million Capital Solution fund. The fund invests across the capital structure, including senior secured loans, junior debt, and preferred equity in a wide variety of sectors. Link

SCOR Investment Partners, a French manager, raised $300 million for its Real Estate Loans V fund. The fund finances the renovation, restructuring, repositioning, or development of real estate across major European metropolitan areas. It invests through senior loans and targets an IRR of around 6%. Link

This newsletter is for educational and entertainment purposes only. It should not be taken as investment advice.

If you’re reading this on Outlook, most of the graphs won’t show. I’d recommend you read it online

Private credit coverage surged to its highest level in March

What’s frustrated me most is how relentlessly clickbait the coverage has become, even when the underlying data has been broadly sound.

The pattern is always the same. A dramatic headline, a rush of commentary, and a far less dramatic reality underneath.

Exhibit 1: BCRED’s monthly loss

Flagship Blackstone credit fund posts first monthly loss since 2022
Financial Times | 2 days ago

Blackstone Private Credit Fund Has First Monthly Loss Since 2022
Bloomberg | 2 days ago

A lot of people sent me this story. But behind the headline, BCRED’s monthly total return was down just 0.4% last month.

I will repeat that, all of this noise was about a 0.4% decline.

Put differently, if you invested $100,000 in January 2021, you would still have roughly $160,000 today, despite this drop.

Exhibit 2: Cliffwater’s Negative Outlook

Cliffwater Private Credit Fund’s Outlook Cut to Negative by S&P
Bloomberg | 4 days ago

Press coverage also focused heavily on the negative outlook for Cliffwater’s BDC, particularly the redemptions.

In reality, S&P wrote:

We affirmed the 'A' rating on the fund because it maintains good asset quality, low leverage compared with peers, and satisfactory liquidity despite the wave of investor redemptions in the first quarter.

The nonaccrual loan rate has barely ticked up from last year and is well below 100 basis points.

Exhibit 3: Bank of America Shorts European Private Credit

BofA pitches bets against European private credit
Financial Times | 3 days ago

The media also seized on Bank of America’s call on European private credit.

But the very next day, BofA withdrew the recommendation and apologized for “factual inaccuracies”.

What has struck me most in all of this is the number of smart, informed people who have been drawn into debating these stories.

Private credit’s biggest danger may not be that the asset class is collapsing. It may be that enough people start to believe it is

📕 Reads of the Week

Market Updates

• Covenant Lite: What software investors can learn from the 2014 energy collapse. Link ***Recommended***

• Pimco analyses private credit’s illiquidity premium. The absence of continuous, mark‑to‑market pricing in private assets should not be viewed as a structural flaw. Rather, it reflects a distinct risk profile, one for which investors must be explicitly and adequately compensated. Link

• LCD’s Q1 Global Private Credit Survey. Link

Manager Updates

• Emerging managers to watch in 2026. Link

• Franklin Templeton launched a new target-date fund for 401(k) investors that includes a private market allocation. The fund allocates between 2% and 8% to private markets along the glide path. The private credit allocation will be implemented through the Franklin BSP Lending Fund. Link

• JPMorgan and Goldman provide hedge funds with tools to short private credit. Link

BDC / Interval Fund Updates

• Oak Hill Advisors is launching a new interval fund, OFLEX, designed to deploy capital across public and private credit markets. The fund will target a spectrum of credit opportunities, including direct lending, asset-backed finance, collateralised loan obligations, public credit, and special situations. Link

• Apollo Debt Solutions received redemption requests for 11.2% of shares. The fund will pay out the quarterly 5% repurchase cap. Link

Sixth Street: Investors in our industry have two choices, the “what” and the “when”.

If you want a blunt view of what is happening in private credit, Sixth Street’s letter is worth a read. Below are my highlights.

👉 Read the full letter

During periods of elevated volatility, it can sometimes be difficult to separate factual conclusions from emotions like exuberance and fear. But as investors, our job is to be aware of and discern the differences between the two.

From redemptions in the perpetual non-traded sector to the AI hype cycle to whatever comes next, our focus remains on the fundamentals. AI is a world-changing technology, but sentiment is leaving little room for nuance.

The current market discourse is conflating equity valuation volatility with fundamental credit risk.

Beneath what is grabbing today’s fearful headlines is the fact that over the past few years exuberance outran facts regarding BDC unit economics. The lack of disciplined risk management on the liability side of the business, specifically the shift towards gathering client funds intended to be immediately deployed rather than patiently invested, has led to structural underearning and looser protections on assets across the sector.

The result is what we see today: a BDC sector going through an intense yet warranted reset.

The dispersion between the minimum and maximum ROE is the widest we have seen.

Zooming out across the broader BDC sector, we believe most of the issues the industry is facing today result from structural risk management failures pertaining to liquidity and capital frameworks. Over the past several years, new vehicles designed with incentives that sacrificed robust capital and liquidity guardrails in favor of short-term asset gathering were introduced and proliferated, targeted at a largely retail client base with which the industry has shallower relationships compared to the institutional investors that initially funded the sector.

Investors in our industry have two choices, the “what” and the “when”.

Vehicles built on perpetual retail flows are vastly limited in both choices as retail capital ebbs and flows. You are limited on the “when”, because dollars that come in need to be put to work right away, and the “what” is therefore determined in large part by what is on the menu at that time. In addition, there is wrong way risk as it relates to flows. Flow levels tend to be the largest when risk premiums are at all time tights. You only have to look at 2024 and the Q1 2025 collapse in private market spreads. During “risk off” periods, when risk premiums are attractive, both capital and liquidity leave the system. This is wrong-way risk for both the capital and manager (as there is a promise and an expectation of liquidity, even if the fine print includes redemption gating provisions). These risks are borne by all shareholders.

Dividend cuts have nothing to do with credit losses

When you combine base rates of approximately 350 basis points today with new investment spreads that have dipped below 500 basis points, the resulting ROEs, even before accounting for credit losses, fall below both the industry’s current estimated cost of capital and the returns that were promised to investors.

To be clear, the dividend cuts that have started to proliferate across the BDC sector over the past few quarters have nothing to do with credit losses. The loss rates for private credit have been relatively stable. But the math will tell you the sector cannot fund current dividends at the spreads at which it has been deploying capital.

Given the overwhelming bulk of BDC assets are floating rate in nature, movement in dividend levels over time – both up and down – should not be surprising on its own. Post-COVID, as we moved into a pronounced rate rise cycle, asset level returns increased, leading to higher payout levels through increased dividends. Similarly, as we have seen reference rates decline from the peak last seen in mid-2023, the notion of lowering dividend levels should be in part a logical and expected outcome.

But it has been the combination of lower reference rates (largely a non-controllable factor for BDC managers absent negotiating for high floors), together with a deployment objective that prioritized capital out the door rather than return on equity, that has led to returns across the sector falling below the equity cost of capital threshold.

Due to a combination of headline-driven fear and weaker performance math, investor trust in direct lending has been damaged.

Liquidity is being taken wherever it can be found, leading public BDCs to trade down and perpetual non-traded BDCs to wrestle with whether to exercise gating provisions

History tells us that once trust cracks and liquidity is impaired, that cycle is difficult to quickly reverse.

If you believe in efficient markets, public BDCs trading at significant discounts versus similar private counterparts is an arbitrage that will resolve over time. Capital will be reallocated, and the public BDC sector should benefit as the liquidity-taking abates and discounts normalize.

The rebalancing of the ecosystem will take time to fully materialize, but it should ultimately result in the widening of new origination spreads and a healthy recalibration of the supply-demand dynamic for private capital.

In periods of significant redemptions, inflows tend to decline significantly.

As we witnessed during the redemption cycle that impacted non-traded REITs in 2022, flows are typically correlated in the sense that in periods of significant redemptions, inflows tend to decline significantly.

That is what we are now seeing in the non-traded BDC market. Utilizing liquidity for redemption activity (e.g., holding a liquidity sleeve in broadly syndicated loans) will, by definition, drive lower returns for non-traded vehicles; lower returns will result in increased capital flows to better relative return opportunities in other sectors of the market. We do not believe this environment will reverse in one quarter. If the non-traded REIT segment is any guide, this capital flow dynamic will last multiple years.

While some may believe today’s volatility is only a minor episode to be weathered, we believe there is going to be an honest reckoning for the sector resulting in a healthier and more resilient direct lending industry

👉 Read the full letter

Subscribe now

Hamilton Lane: Evergreen’s will dominate private credit

👉 Hamilton Lane: Evergreen’s will Dominate

The evergreen world has gone from, effectively, $0 to $500 billion in the last decade. And the top managers are vacuuming up impressive sums: The largest evergreen fund’s NAV exceeds the combined NAV of the five largest closed-end funds raised in 2024.

The credit fundraising market will increasingly be dominated by evergreen vehicles.

Will larger institutions embrace that form of investment for their credit portfolios?

They already are.

The growth in the size of the private credit market, together with the growth of the evergreen channels, will result in a small group of very large managers.

If you are not a major player in that space now or in the very near future, you will not have a meaningful private credit franchise. You might have a meaningful niche strategy or place in the market, but scale will increasingly matter in the credit space.

👉 Hamilton Lane: Evergreen’s will Dominate

💰Fundraising News

Goldman Sachs Asset Management is planning to raise $13 billion for its latest mezzanine debt fund, GS Mezzanine Partners IX. The fund invests in sponsored companies across North America and Europe. The fund will target net returns of 11%–13% using leverage, or 8%–9% on an unleveraged basis. More here

Orion Resource Partners, a New York-based manager, closed its $2.2 billion Mine Finance Fund IV. The fund finances the construction and acquisition of strategic metals and critical mineral assets. The fund is already 61% committed across a portfolio of projects, spanning North and South America, Europe, Australasia, and Africa. More here

Lone Star, a US-based manager, closed its $1 billion Residential Mortgage Fund IV. The fund invests in newly originated, performing U.S. non-agency mortgage loans. Non-agency borrowers generally include self-employed individuals and small business owners who do not have access to traditional agency and government-backed mortgages, despite often having strong credit profiles. With leverage, the fund is able to invest in over $10 billion of mortgage loans. More here

EOS Investors, a US-based real estate firm, announced a first close of $150 million for its inaugural hotel credit strategy. The strategy will focus on senior whole loans, mezzanine financing, and structured debt opportunities in the hospitality sector. More here

Walton Global, a US real estate manager, launched its U.S. Land Income & Growth Fund for offshore investors. The hybrid strategy provides senior secured loans to large national U.S. homebuilders. At the same time, the fund acquires pre-development residential land in U.S. metropolitan areas characterized by population growth, housing undersupply, and sustained homebuilder demand. More here

This newsletter is for educational and entertainment purposes only. It should not be taken as investment advice.

A close friend recently asked me why the Credit Crunch is so clearly biased in favour of private credit. Why don’t I link to the negative coverage? If you’ve had similar thoughts, I want to clarify that this is intentional, and there are two main reasons for this:

1. There’s no shortage of negative news. Why would you want your inbox weighed down by yet another predictable private credit bubble article? If that’s the kind of coverage you want, I’d encourage you to subscribe to two far more reputable publications: the FT and Bloomberg.

2. The future is shaped by tough-minded optimists. The leading managers aren’t sitting on the sidelines and giving up because they’ve had a few bad deals or a portion of their investors are concerned about their performance. The leaders are addressing the defaults, originating new deals, and raising their next fund. I’m focused on learning from these managers, and hopefully, reading this newsletter will allow you to do the same.

I’m always open to being challenged and would love to hear from you.

If you’re reading this on Outlook, most of the graphs won’t show. I’d recommend you read it online

📕 Reads of the Week

Market Updates

• Goldman Sachs: Taking The Keys: A Closer Look at the European Private Credit Market

  • Credit events in Europe are neither random nor evenly distributed.

  • Instead, they reflect an evolving macroeconomic backdrop and underwriting discipline.

  • Stress has not been market-wide; rather, it appears concentrated in specific segments

  • Stress events are likely to remain elevated relative to the last decade.

  • Manager selection in the asset class, therefore, should matter more than it has in the past.

  • 👉 More here

• 🎾 The Business of Pickleball: From niche to everywhere. Link

Manager Updates

• Deutsche Bank is expanding its private credit offerings. Link

• Apollo: The Evolution of Sustainable Credit. Link

BDC Updates

• Accredited Investor Insights takes a closer look at Cliffwater Corporate Lending Fund. Link

• Blue Owl recommends shareholders reject the unsolicited offer from Cox and Saba. Link

• Morgan Stanley received redemption requests for 10.9% of shares. The fund will pay out the quarterly 5% repurchase cap. Link

• Cliffwater received redemption requests for 13.9% of shares. The fund repurchased 7% of shares outstanding, which is the maximum amount permitted without changing the terms of the repurchase offer. Link

Partnership Updates

• Bank of Ireland and Kennedy Lewis announced a €2 billion partnership to originate and jointly finance European mid‑market buyouts. Link

• Dignari secured a commitment from the Abu Dhabi Investment Authority (“ADIA”) for its APAC Developed Markets Private Credit Strategy. The real estate fund will finance developers, construction companies, financial institutions, and investors in APAC’s developed markets, with a particular focus on Hong Kong. The strategy will target financing opportunities for residential, office, retail, student accommodation, serviced apartment, co-living, data centers, and logistics segments. Link

Hamilton Lane: Where Are the Signs of Stress?

If you’re looking for support for private credit, start with this year’s Hamilton Lane report.

👉 Hamilton Lane: Private credit fundamentals are solid.

20 years ago, private credit was a cottage industry

• There were only 466 closed-end funds, which were primarily mezzanine and distressed managers.

• Private credit is about 24 times the market size now.

• Over this time, private credit took almost 50% of the LBO financing market from the public and syndicated bank lending markets.

Let’s ask a question about that: At what cost?

• Do we think the recent spate of defaults and frauds is a function of private credit actions?

  • With the increased capital available

  • With the increase in market share

  • With the ongoing press about the pressures on private credit

• The casual observer would think that yields and spreads of private credit over broadly syndicated loans were collapsing.

That would be a completely incorrect assumption.

• Sponsors want private credit and seem willing to pay for what it has to offer.

• There is no sign of stress with these spreads or returns, relative to BSLs.

But let’s keep looking because we are incessantly told private credit is in a bubble.

• Here is one of the features of this current cycle that is different from prior cycles

• As prices went up for acquisitions, leverage levels didn’t follow them up.

• For all the talk of the desperate private capital providers throwing money at deals, well, they didn’t.

• The equity cushion, that layer below the credit providers, is large.

• Very large.

Tell us, where are the signs of stress?

• Where are the signs of a bubble? Sure, they may be metaphysical, beyond the comprehension of numbers. Even there, we’re not seeing it.

• Everything looks average.

• Even coverage ratios are getting better.

• Is it super bullish? No.

Is it super bearish with any indication of imminent danger or collapse? No. We’ll say it clearly:

Private credit is not in a bubble. If it’s not in its Golden Age, it is in its Silver Age.

👉 Read Hamilton Lane’s Report

Subscribe now

💰Fundraising News

Eagle Point, a Connecticut-based private credit manager, closed its $559 million Defensive Income Fund III. The fund originates and invests in Portfolio Debt Securities, which are primarily debt securities issued by credit funds to finance a portion of their portfolios. Since the launch of the strategy in 2020, Eagle Point has originated and invested in over $8 billion of PDS across a range of credit funds, including private credit funds, closed-end funds, commercial mortgage REITs and BDCs. More here

This newsletter is for educational and entertainment purposes only. It should not be taken as investment advice.

One favour to ask: if you like this, please share it with a friend. If someone forwarded this to you, you can subscribe here.

If you’re reading this on Outlook, most of the graphs won’t show. I’d recommend you read it online

📕 Reads of the Week

Market Updates

• Barings: Digital infrastructure varies widely in quality. Many deal have already encountered challenges, and we expect more to follow. We’re extremely selective and these are a very small proportion of our portfolio. More here

• Apollo: Dispersion in private markets is meaningfully wider than in public markets.

  • Manager selection matters.

  • 👉 Read more here

• Ares: Private credit has consistently offered durable income at a premium

• 👉 Read more here

Manager Updates

• 🔉HPS’s Scott Kapnick on The Next Wave in Private Credit Link.

• 🔉RECOMMENDED LISTEN: Ares’ Joel Holsinger on Asset-Based Finance. Link

BDC Updates

“In the first quarter of 2026 , HLEND received shareholder requests to repurchase approximately 9.3% of shares outstanding as of December 31, 2025, exceeding the 5% framework for the first time since its inception…

HPS Corporate Lending Fund

• BCRED meets its record 7.9% redemption request. Link

• PIMCO: Don’t Mistake Private Credit for Just BDCs. Link

• Raymond James BDC Update

  • Raymond James posted a great update on BDCs.

  • Three of my favourite charts below

  • 👉 Read the report here

BDCs Trade Around 0.8x NAV, with Significant Dispersion

LTM Total Returns Averaged -15.7%

BDCs Generate Meaningful Fees for Managers

Partnership Updates

• AlbaCore partnered with MUFG to launch an infrastructure debt platform. The fund will finance UK and European infrastructure projects. Link

• Barings partnered with U.S. farmland investor Homestead Capital to launch a $300 million asset-based finance program. Homestead acquires, finances, and manages diversified portfolios of high-quality farmland assets. With operations across much of the U.S., Homestead’s credit strategy provides capital solutions to borrowers ranging from small and mid-sized farmers to large, vertically integrated agribusinesses. Link

Bain & Company: Lunch and a handshake simply won’t cut it anymore

This week’s feature is not strictly about private credit. But Bain’s Private Equity Report is an excellent all-round read. Below are my key takeaways. I’d also recommend reading why 12 is the new 5.

👉 Read Bain’s report here

Average hold periods have steadily increased since 2017.

But global distributions as a share of net asset value are at multidecade lows

The root problem can be seen in DPI for recent fund vintages.

Looking at the cohort from 2017 to 2021, GPs have underdelivered vs. historical performance for every vintage.

TVPI begins to flatten after year eight

And IRR starts to fall off even earlier.

None of this is exactly new.

With distributions to investors in drought stage for four years running, it’s no surprise that fund-raising continued to lag in 2025.

The GPs attracting capital in this period of scarcity are those that have delivered both strong returns and steady distributions.

LPs have become significantly more demanding. Increasingly, they are looking for top-quartile returns from recent funds as well as consistent, top-quartile DPI across funds.

Not only is it critical for a fund to be able to define and articulate a truly differentiated and repeatable strategy, focusing on sector specialization, world-class capabilities, or whatever else separates it from its peers.

The most effective firms are also transforming how they communicate that strategy in the marketplace. A professionalized investor relations capability is rapidly becoming table stakes in the buyout world. These organizations define the market clearly and learn what specific LPs want to hear in terms of metrics, coinvestment opportunities, fees, and DPI.

They target the right decision makers with well-crafted sales plays and ensure that the right message is getting to the right “customer.” Old-school networking still matters, of course. But lunch and a handshake simply won’t cut it anymore, even for firms that have been around for decades.

👉 Read Bain’s report here

Subscribe now

💰Fundraising News

Sound Point Capital, a New York-based alternative credit manager, closed its $1.5 billion Strategic Capital Fund III. The fund originates loans secured by cash-generative collateral, including accounts receivable, equipment, inventory, and other asset-based assets. More here

360 One, an Indian alternative asset manager, announced a final close of $400 million for its fifth vintage private credit strategy. The fund will continue providing structured and customised credit solutions to the established Indian companies. More here

Avila Real Estate, a US-based private credit platform, announced a second close of $200 million for its latest real estate debt fund. The fund provides senior credit solutions to land developers and homebuilders, including project-level, first mortgage loans for land development and first lien revolver facilities to support vertical construction. Combined with Hillwood as an anchor LP, the fund has some of the largest builders and developers in the country supporting the strategy.‍ More here

Partners for Growth, a California-based credit manager, launched a $180 million fund for later-stage, technology-focused borrowers. The PFG Income Fund has completed a first close and begun deploying capital. The fund will invest in structured growth debt, asset-backed financing and warehouse funding, including for fintechs and alternative lenders building loan and asset book. More here

This newsletter is for educational and entertainment purposes only. It should not be taken as investment advice.

One favour to ask: if you like this, please share it with a friend. If someone forwarded this to you, you can subscribe here.

If you’re reading this on Outlook, most of the graphs won’t show. I’d recommend you read it online

📕 Reads of the Week

Market Updates

• Market Financial Solutions, a UK mortgage provider with more than £2 billion of debt, enters administration. Banks account for the vast majority of the exposure. No prizes for guessing who the coverage is privately crediting. Link

European Lower Mid-Market Premium to Upper Mid-Market

• The European Lower Mid-Market premium to Upper Mid-Market Falls Below 60 bps.

  • 👉 Read Why Invesco is Focused on the Upper Mid-Market

Manager Updates

• Calpers Unfazed by Software Stress in Private Credit. Link

  • Anyone asking Bloomberg News what AI means for Bloomberg Terminal Subscriptions?

• Ares Alternative Credit's Fund Finance 2025 Year Review. Link

  • Deployment has more than doubled since 2023.

BDC Updates

“The problem is the right asset with the wrong structure. There’s a silver lining: you can still use this structure, but don’t promise outperforming returns, don’t use so much leverage, and get back to basics of underwriting.”

Mathieu Chabran, Co-Founder of Tikehau Capital

• BlackRock Private Debt Fund Slumps After Slashing Dividend. Link

• Apollo’s MidCap Financial cut its dividend and marked down the value of its assets. Link

• New Mountain Finance agreed to sell $477 million of assets to a third party at 94% of fair value for the purposes of increasing portfolio diversification and reducing PIK income. Link

• FS KKR Capital Q4 FY2025 earnings call transcript. Some fairly spicy questions on fees. Link

For investors concerned about the uncertainty of technology obsolescence risk, enterprise value destruction for the software industry, and the burgeoning threat of artificial intelligence, SLR Investment Corp.'s portfolio, with its lack of software exposure, can be viewed as a safe haven

Michael Gross, CEO of SLR Investment Corp, Speaking at his Q4 earnings

Partnership Updates

• BNP and Apollo Global are expected to announce a European private credit partnership with both firms jointly arranging loans for corporate and private equity-backed borrowers across the region.More here

Looking Beyond Cockroaches and Canaries

TCW published a great piece on how it thinks about the current state of private credit. Below are my extracts.

👉 Read the full piece here

Whenever someone says, “private credit did X,” the questions should be:

• Which part of private credit?

• Who in private credit actually made this investment?

Jamie Dimon talked about cockroaches, others about canaries. While we believe there’s truth in these comments, they don’t completely capture what’s happening.

The core issue isn’t that these specific companies failed. The message is that aggressive, careless underwriting has been creeping into the market for the past seven or eight years. During that time, we had near zero base rates, expanding enterprise value multiples, abundant capital, and no recessions. This environment fostered, and hid, a lot of bad lender behavior: looser documentation, shortcuts in diligence, increasingly more borrower friendly terms.

Now that rates are normalizing and economic volatility is back, we expect this aggressive behavior will be exposed.

By no means is this the end of private credit. These events are reminders that many lenders haven’t been as prudent as they should have been. We expect to see more mistakes.

A Glimpse From Software

When the biggest part of the market is built on the idea that growth is durable and recurring revenue solves most problems, even a small reset can reveal where lenders leaned too much on the narrative and not enough reliance on conservative lending assumptions.

That doesn’t make software a “problem sector,” any more than First Brands or Tricolor made their respective industries a problem. It just reminds us that when a large corner of the market is priced with little to no margin of error, the surprises tend to show up in bunches – not because everything is connected, but because the overall behavior behind these loans was similar.

Dispersion Is Coming – Principal Preservation Matters Again

For most of the post Global Financial Crisis (GFC) era, private credit managers all looked pretty similar and pretty good. Defaults were rare, recoveries were decent, and the environment frankly didn’t test whether lenders knew what they were doing. That period is over.

Lincoln International’s estimate that there was $24 billion in foreclosed debt in 2025, nearly 2x the previous three years combined, shows lenders are finally taking remedies on underperforming companies.

That’s not a sign of crisis. In our view, it’s a sign of a maturing market – and of a long overdue differentiation between strong and weak underwriting. It’s a return to focusing on the single most important differentiator in credit investing: principal preservation. Not deployment. Not AUM growth. Not headline yields. We have said it many times: lending money isn’t hard – getting repaid can be hard. The managers who understood that during the very good times are the ones who will stand out now in this less certain environment.

The Vintage Problem – And Why 2021-2022 Is Showing Up Now

A lot of the pain emerging today traces back to the 2021-2022 post-COVID environment.

Low rates, unsustainable and elevated enterprise value multiples, fierce competition, and enormous pressure to put capital to work.

Many lenders stretched. Some ignored valuation discipline. Others leaned into borrower friendly terms because of the pressure to win the deal. These mistakes cannot be fixed after the fact. You can’t retrofit discipline. Adding restructuring help to the staff now feels a bit late.

We expect the next several years could look “vintage sensitive,” even though we do not believe private credit should be considered a vintage driven asset class.

Figure 1. Global Dry Powder by Asset Class

Source: Pitchbook

Deals Matter More Than Capital Inflows

People often say today’s tight spreads and weaker structures are because too much dry powder and fresh capital has moved into private credit. While we understand the sentiment, we don’t think that’s the root cause. Private equity has significantly more dry powder than private credit, (see Figure 1). They’re simply not deploying it. The real issue is too few deals in the market, (see Figure 2).

Figure 2. Private Equity Platform M&A Activity

Source: Lincoln VOG Proprietary Private Market Database

Until sponsors start actively buying companies again, lenders will be competing for a limited set of transactions – and when competition heats up, underwriting standards slip. But over time, we believe the market deals with this.

Managers without discipline don’t survive stress.

👉 Read the full piece here

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Howard Marks’ Key Questions on AI

Howard Marks Revisited AI. Below are the key Q&As.

👉 Read the full memo

Is the technology a fad or an illusion?

I say with conviction that it’s a very real thing, with the potential to vastly alter the business world and change much of life as we know it.

Is the application of the technology a distant dream?

Clearly, the technology is already in demand and being applied on a large scale. Since AI seems amorphous and little understood, I think its potential is more likely to be underestimated today than exaggerated.

Are the people building AI infrastructure behaving unwisely?

In every example of sweeping technological innovation, the headlong rush to build infrastructure has vastly accelerated the adoption of the innovation and caused a lot of capital to be “malinvested” and destroyed. There’s no reason to assume this time will be different.

Will the investment in AI infrastructure produce an adequate return?

Since we don’t have full knowledge of AI’s business potential or its impact on profitability, this question can’t be answered. There’s certainly great enthusiasm for AI businesses. We’ll know in 10 years whether the resulting profits justified it.

Are the valuations assigned to AI businesses irrational?

The so-called hyperscalers, for whom AI is one important part of a great business, may be overvalued or undervalued, but it’s unlikely that today’s prices for enormously profitable companies like Microsoft, Amazon, and Google are going to turn out to have been ruinously excessive. Established pure AI plays like OpenAI and Anthropic have yet to be listed publicly; we’ll see what kind of valuations their IPOs result in. Finally, the startups to which multi-billion-dollar valuations are being assigned – some of which have yet to describe their strategies or announce products – can only be viewed as lottery tickets. Most people who participate in lotteries end up with worthless tickets, but the few winners get very rich.

👉 Read the full memo

💰Fundraising News

Arcmont Asset Management, a London-based manager, closed its $1.8 billion Capital Solutions Fund II. The opportunities fund invests in more complex credits, junior capital, and market dislocations. Since launch, the strategy has invested nearly €2 billion in more than 50 transactions. Capital Solutions II is currently c. 55% committed with a portfolio of more than 20 investments. More here

5C Investment Partners, a New York-based manager, announced a partnership with Qatar Investment Authority. 5C provides direct financing to high-quality companies in the upper middle-market. The new investment will help the expansion of 5C’s existing direct lending platform and drive the development of new investment strategies. 5C has grown its platform to $3 billion of investable capital since launching in 2024. More here

Appendix / Cut

• Brookfield says software loans are not systemic. Link

• Stepstone on recent trends in corporate direct lending 2H25. Link

PE Distributions vs 20-year Average

Now that returns in private credit are 8 or 8.5%, the returns on the public credit side seem to be 6 or 6.5%. So that relative value still holds.

That’s the right way to evaluate it. Are you being paid sufficiently for the illiquidity that you are assuming?

That’s demonstrably yes.

Mike Patterson, HPS Founding Partner and Co-President

This newsletter is for educational and entertainment purposes only. It should not be taken as investment advice.

If you’re reading this on Outlook, most of the graphs won’t show. I’d recommend you read it online

📕 Reads of the Week

Market Updates

Private Credit Dispersion is widening

• Current default rates remain modest, Proskauer’s lastest index reported a 1.84% default rate, consistent with the second quarter’s 1.76%, but stress typically manifests with a lag.

• Return dispersion has elevated and Nuveen expects it to widen further as performance issues surface among managers that:

  • Competed aggressively for deals in crowded markets

  • Relaxed leverage, documentation or structural protections during peak deployment periods

  • Drifted from core strategies in pursuit of scale

👉 Read the full report here

European Recapitalisation Surged nearly 4x in 2025

• In total, €5.5bn of European direct lending deals were recapitalisation-related, materially higher than the previous record of €2.6bn in 2024.

• Pitchbook recently reported that the median hold time for private equity owned companies has risen to 3.8 years, the highest level since 2011.

• 👉 Read CVC’s Q4 2025 Credit Perspectives - here

The $1.2T Funding Gap Driving Private Credit Growth

• Hamilton Lane compared private equity dry powder againsts private credit dry powder.

• Based on their analysis private credit has $1.2 Trillion less dry powder.

• If you assume 50% LTVs, the implied funding gap is at least $1.2 trillion

• In practice, many of these companies may use less leverage or access BSLs and other liquid credit markets.

• 👉Read the report here

Venture-debt loan deterioration has accelerated sharply since 2022

• Given venture debt’s sector composition, IT exposure would seem a natural explanation for the rise in distress. IT represents nearly 40% of the net asset value in venture debt, compared with 19% for direct lending and 7% for opportunistic funds.

• However, it’s health-care borrowers that have largely driven the recent venture-debt write-downs, while technology loans have exhibited below-average rates of distress.

• 👉Read the MSCI’s report

  

Manager Updates

• Bank of America is committing $25 billion to private credit. Link

• Apollo: How Is Liquidity Evolving in Private Investment-Grade Credit? Link

• Ares’ 7 Priorities for 2026. Link

• KKR: Ctrl + Alt + Credit. Link

Partnership Updates

• CVC has partnered with AIG to manage up to $2 billion in insurance-focused private credit mandates. More here

Three Takes on Blue Owl’s OBDC II

You’ve probably read a lot about Blue Owl this week. Instead of adding to the noise, below are three of the top articles I’ve read.

CovenantLite: Blue Owl on the Ropes. Link

Using OBDC’s roughly 1.19x debt-to-equity leverage, a 23% discount implies about a 10.5% gross markdown on the portfolio

In other words, if you take OBDC’s discount literally as a pure credit-loss forecast, the market is pricing something like a GFC-level (or worse) loss cycle.

So Is the Discount Overdone?

The short answer is a cautious yes, but only if you treat OBDC’s discount as a pure forecast of credit losses.

OBDC is not in active distress.

👉 Read CovenantLite here

Leyla Kunimoto’s deepdive into understanding 🦉 OBDC II’s asset sale and structural shanges. Link

Everything sold was rated 1 or 2, these are the best quality assets in the portfolio. After backing out the ~$538M in fair value that just walked out the door (the $600M headline includes unfunded commitments), OBDC II’s remaining portfolio shrinks to roughly $1.18 billion. The problem children are still in the portfolio…

If we add up non-accruals and the impaired second-lien names, you’re looking at roughly ~15% of the remaining portfolio. That’s up from ~10% before the sale.

👉 Read Leyla’s substack here

Cliffwater: Blue Owl’s problems are not investment-related but instead caused by its BDC’s obsolete structure. Link

Blue Owl has now done the right thing.. Returning 30% of investor capital that otherwise would have taken well over one year.

Full liquidity for OBDC II investors will likely come over the next year

We view the Blue Owl sale transaction as a sign of strength in the private debt market and not, as the Wall Street Journal characterized it, as a warning sign.

Headlines cherry-picking loan defaults are also running contrary to actual private loan performance. OBDC II historically delivered strong loan performance since its March 2017 inception. Its underlying loan portfolio has returned an annualized 9.11% through September 30, 2025, compared to 9.19% for the Cliffwater Direct Lending Index (“CDLI”) covering the same period.

👉 Read Cliffwater’s analysis here

Saba Capital and Cox Capital Partners

Saba Capital Management today disclosed that they provided notice to Blue Owl Capital Corporation II of their intention to commence a tender offer to purchase a portion of outstanding shares of OBDC II in cash…

The offer price is expected to be at a 20-35% discount to the most recent estimated net asset value

👉 Read Saba Capital’s press release here

I still have a few outstanding questions: 1) What is OBDC II’s fund end date / why accelerate the run-off now? 2) Has anyone forecasted the fund’s cashflows over the next few years? What does this loan portfolio look like? 3) Why didn’t Blue Owl just pay the 5% quarterly redemption over the next 6 quarter?

If you know the answers to any of these please comment below / send me a message.

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💰Fundraising News

Fortress is adding an unleveraged sleeve to its latest private credit vehicle as it looks to broaden appeal among insurance companies. The new structure will sit alongside the leveraged version of Fortress Lending Fund V, which is targeting total commitments of at least $3 billion. While the leveraged sleeve will invest in a mix of direct corporate lending and asset-based finance, the unleveraged option will focus primarily on direct corporate loans. Fortress is targeting net internal rates of return of around 11% to 14% for the leveraged sleeve and approximately 8% to 9% for the unleveraged version. More here

Ares and Coller Capital closed a continuation vehicle for Ares U.S. Direct Lending’s 2018-vintage fund with more than $1.3 billion in total commitments. The continuation vehicle comprises a diversified portfolio of first-lien, floating-rate loans to U.S. middle-market companies backed by leading private equity sponsors. More here

CAPZA, a French investment manager, announced a first close of $1.7 billion for its Private Debt 7. The fund provides financing to SMEs and mid caps primarily in France, Germany, the Benelux, Spain and Italy through unitranche and subordinated debt. This seventh vintage is part of the broader offering of BNP Paribas Asset Management Alts, which currently manages approximately €135bn in private debt and alternative credit assets. More here

Tikehau Capital, a French alternative asset manager, announced a final close of $1 billion for its second vintage private debt secondaries fund. Launched in 2019, the fund invests in secondary transactions across North America and Europe. The fund has deployed approximately 50% of its committed capital. More here

Brigade Capital, a New York-based manager, raised $1 billion for its first dedicated private credit fund. The opportunity fund less efficient segments of the market including lending to lower-to-middle market and non-sponsor borrowers. More here

Keppel, a Singapore-based manager, has raised $561 million for its third private credit fund. Keppel’s private credit strategy finances companies with defensive infrastructure-like operating businesses across a wide range of real asset sectors, including renewable energy, transportation, telecommunications,and logistics in Asia Pacific. The fund targets low- to mid-teens returns. More here

Patria Investments, a Latin America-focused manager, is launching the next vintage of its Latin America private credit strategy. The fund focuses on senior secured, US dollar-denominated loans structured with robust collateral, covenants, and cash-flow protections for mid-market and family-owned borrowers.The prior fund has already deployed more than 70% of capital into 14 transactions, generating a gross unlevered IRR of 15.6% with an average duration of 2.5 years.

Star Mountain, a U.S. lower middle-market manager, closed its second $286 million SBIC fund. The fund will make debt and equity investments in established service-oriented U.S. small and medium-sized businesses. More here

Janus Henderson and Victory Park Capital (“VPC”) today announced the launch of the Privacore VPC Asset Backed Credit Fund. The firm’s first interval fund aims to provide exposure to private asset-backed credit. More here

This newsletter is for educational and entertainment purposes only. It should not be taken as investment advice.

Every quarter, I summarise the 400+ pages of earnings transcripts from the largest managers. I do this for two main reasons:

1. It helps me understand the consensus views.

2. It brings to light unfiltered and occasionally provocative opinions.

This is the piece I look forward to writing every quarter. If you take away one useful insight, I’d really appreciate you forwarding this newslettter on.

Start with the software section if you’re short of time.

Only 1% of you will read the whole thing, but if you want to feel insufferably smug, I’d recommend printing this out, blocking 15 minutes in your diary, and giving it a proper read.

I’ve included a breakdown of key topics with links for the rest of you. Skim, skip, or dive in.

📚 Quotes of the Quarter

• Provocative Opinions

  • Tech lending has worked, continues to work. No, We don’t have red flags.

  • BDC Redemptions

  • If you see LTVs rise to 60%, that’s getting to the point where it calls into question the refinanceability of the loan.

  • The rotation out of private equity into private credit

  • Pebbles and Boulders

• Software

  • The four characteristics Ares looks for in software companies

  • What needs to happen for you to take losses in your software portfolio?

  • There is an enormous amount of equity cushion below these loans

  • Whether there is or isn’t an AI bubble is secondary to the question.

  • This monolithic view people are taking is gonna prove quite misguided

  • Our software portfolio companies generate significant cash flow and are growing faster than the overall credit portfolio

• Consensus Views

  • Deployment

  • Fundraising

  • Secondaries

  • Blackstone’s True North

  • Partnerships

  • 401(k)s

  • Portfolio

  • IG Private Credit

  • Real Estate

  • Defaults

  • Spreads

  Transcripts can be found here

Provocative Opinions

Tech lending has worked, continues to work. No, We don’t have red flags.

Blue Owl: “A point of fact, we don’t have yellow flags. We actually have largely green flags.

These are loans that are on average 30% of the value of the enterprise at the time of acquisition, with huge equity cushions.

Let’s be fact-based as opposed to headline-driven.

Since November 2022, the advent of ChatGPT as some kind of moment of AI’s arrival, since that time, the portfolio on average has grown revenue 40% and EBITDA 50%.

We’ll bring it much more current because we can all agree that in November 2022, it was doing poems, so maybe it didn’t matter.

But let’s bring it to this quarter. Fourth quarter, the revenue growth was 10%, and the EBITDA growth in those software names was mid-teens. That’s fourth quarter, quarter over quarter.

Stories don’t drive results. Results drive results. And as you can see, we have delivered on every one of our products. An absolutely top-level performance in both total return and in terms of nonaccruals and in terms of loss. Think about what we’ve run at an eight basis point net loss rate. And so these facts do matter.

↩ Return to index

BDC Redemptions

Ares

95% of all the investors are not looking for liquidity. So typically, what’s driving these redemption queues are a small handful of investors that have to continue to get back in the queue to the extent that they don’t get the liquidity they need. So you do tend to see overinflated numbers coming through the redemption queue as people are trying to get to the front of the line.

Blackstone

On BCRED, we did see this uptick in redemptions, which is not a surprise given all the headlines out there.

I think it is notable that the last two months, despite all of this, we have had $800 million of gross inflows each of the last two months.

On the institutional side, where they are looking at the fundamentals, some of the noise here is not as impactful. Their confidence in what we are doing and their need in many ways is going up.

Apollo

Even though with a small below-the-line redemption in the fourth quarter, net new assets were up every quarter last year, over $5 billion of net inflows.

Blue Owl

Limiting people can also be very negative.

The hard cap is a mechanical hard cap. Unless, you have the added flexibility to accommodate. And I put us in the latter category. We manage our businesses with very low leverage. Manage with a lot of liquidity. I say this with no arrogance. We’re very good at both the liability and asset side.

So there really was no reason to you know, not fulfill an investor’s request for their capital back.

And we see that as actually meeting investor needs. Being an investor-friendly and investor-focused firm, which we think leads to much quicker recoveries in fund flows, and leads to much better performance.

If you have plenty of capital as we did in these vehicles, then we fulfill those requests, that will lead to more wealth growth over time.

BlackRock

Redemptions were 4.1%, which was higher than recent quarters, but in line with the broader industry. Most BDCs posted positive flows.

↩ Return to index

If you see LTVs rise to 60%, that’s getting to the point where it calls into question the refinanceability of the loan.

Oaktree: “Generally speaking, today, outside of software, when there is an LBO, you’re seeing something like 50%-55% LTV at the max. You’re not seeing 70% or 65% LTV deals generally.

So what would happen, assuming these businesses aren’t burning a terrible amount of cash, and they get to within a reasonable timeframe of maturity, if once the sponsor, calls up the market and says, I want to refinance, and the response is going to be, well, you’re gonna need to put in more equity to kind of make this closer to a 50/50 LTV again.

The sponsors will then have to judge whether it makes sense to do that or not, based on the future sort of risk factors and earnings potential of the business, but also the stage of deployment of the fund that those investments are in.

If a fund cannot call capital, it can’t, then that sponsor can’t support the business.

If the fund is already a winner and has already returned a lot of capital, then it’s more likely to let go those straggler businesses.

And so they’re, the sponsor is less likely to support the business in that event.”

↩ Return to index

The rotation out of private equity into private credit

Apollo: “Most of the investments that are made into these private BDCs are de-risking for the individual making the investment.

They are not selling their treasury exposure.

They’re selling their equity exposure, and they’re making an intelligent decision that they can earn roughly long-term equity returns in first lien debt versus in equity.

The equity exposure and the pricing of what’s happened in software-related and other-related has been extreme. We’re talking, in some instances, quality companies down 50%-70%.

This is why people are in first lien to begin with.

In private markets, particularly private equity, software had been almost 30% of the market for a decade.

Software is still an amazing business, but you may not like the purchase price at which you entered because you get to now look at the same companies down 50%-70%.

And that’s the public companies. And I have to believe the private marks with leverage will go down equally as much.

↩ Return to index

Pebbles and Boulders

Apollo: “Much of the conversation in the last several weeks has been about a quick reset of prices in the public equity market and then the impact on non-investment-grade software lending, which has been particularly focused on the non-traded BDCs.

We put out a deck in December, and all the conversation recently has been about the narrow sector, the $2 trillion of private credit.

It’s really not touching the $35 trillion to $40 trillion opportunity in investment-grade private credit. In the last 18 months, short-duration IG vehicle, a strategy that we really started 18 months ago, is up to over $7 billion in assets.

The headlines are focusing on the small pond.

Taking a step back and really understanding how the big boulders are moving, this is the discussion when we talk about non-traded BDCs. That’s about pebbles.

What Marc is talking about is boulders. It’s much more thematic, and it’s really what’s driving our business over the next 5 and 10 years.”

↩ Return to index

Software

Software has wobbled over the last six months

Interestingly, the listed alternative managers have sold off too

That parallel move has sparked a wave of headlines linking the two.

With AI disruption the popular hook…

Here’s how the managers are addressing the narrative

The four characteristics Ares looks for in software companies

We don’t feel any differently this quarter than we did last quarter, despite all the noise in the market. The first thing to remind people is we started investing in the software space about fifteen years ago. From the beginning, the number one risk that we identified in the software space was technology risk, and obsolescence risk.

AI is probably the most disruptive technology risk that we could have imagined. And it absolutely is going to disrupt a lot of software companies, and I don’t want to sugarcoat it. But we still believe strongly that we’ve constructed a portfolio that will remain highly resistant to this risk.

I’ll just outline a few characteristics that we’ve always looked for in our software companies

1. The first thing is that we primarily look to invest in foundational infrastructure software for complex businesses. This is software that sits at the center of the technology stack and powers all core business systems. It’s the last type of software that a company would look to switch out because all of your downstream systems that feed off the software might also be at risk.

2. We’re also looking for software companies that collect and own proprietary data. And they collect this data and build this data over many years serving their customers. They use the data as a core part of their value proposition when they deliver the software. We call this a data moat. And it’s important to mention that AI is not a database. AI doesn’t house data.

3. We also are looking for software companies that serve regulated end markets like healthcare and financial services. There’s lots of these regulated end markets. Where the need for accuracy and auditing of information is really high. And the penalties for lack of compliance can be severe.

So John, you think about it. Jeffrey’s is not going to rip out its core infrastructure software and replace it with an AI-based solution anytime soon, in our opinion.

4. We’re looking for software companies that have very diverse customer bases. So even if some customers do switch to maybe an AI-generated software solution, others will remain and they create sort of this long tail of cash flow. That will survive and we really do not see quick and binary outcomes that occur when you have this kind of diversified customer base.

↩ Return to index

What needs to happen for you to take losses in your software portfolio?

Blue Owl: “What needs to happen for you to take losses in your software portfolio?

Over the last three years, the software index is up 23%. We’re all reading about and know what happened in the last year. It’s down 20% now in the last year.

But it’s up 23% over the last three years.

So if you think about that as some indicator of the vintage, a lot of big software deals PE firms did, Software equities are up.

We are a first lien lender in almost every instance we talk about software. We are, on average, around 30% loan to value.

So what’s happened objectively in the marketplace is since the vintage of those transactions, equity values on average are up 23%, but pick whatever number you want. We started at 30.

So now let’s answer your question. In order for us to have material losses you have to destroy 70% of the value of every one of these software companies.

We have 400 companies. And, of course, there are losses. Every quarter, we’re gonna have companies that go and get in trouble and companies that get out of trouble. And even trouble doesn’t mean we’ve lost anything. Means they might be struggling. We may have to own them. That’s already built into the calculation. And that’s what with all that said, we’ve been running eight basis points net.

↩ Return to index

There is an enormous amount of equity cushion below these loans

ARCC: “We are lenders to these companies with maturity dates. We’re sitting at the top of the capital structure. We have all the assets as collateral, including intellectual property. There’s lots of ways that we can look to recover our principal if things do start to get disrupted. And this is just a very different place to be sitting in the capital structure than sitting down in the equity.

If you look at some of the metrics on our software book, they’re extremely healthy. The book itself is also highly diversified. None of which is outsized in any way. These software companies are very large and established business The average EBITDA on our software book is $350 million. That’s above the average in our portfolio. The software book, the LTM EBITDA growth in the software book is growing at a faster rate than the overall average EBITDA on our book. Even through the recent quarter.

The loan to values and this is maybe one of the most important points. The loan to values on our software book our software loan book is 37% on average. That’s below the loan to values on our overall book there is an enormous amount of equity cushion below these loans.

It’s really hard for me to see a scenario where we would find any kind of real dramatic risk or change in our view toward those core enterprise software businesses.

↩ Return to index

Whether there is or isn’t an AI bubble is secondary to the question.

Blue Owl: “Google is raising its CapEx guidance to $175 billion, up from $93 billion. This is an enormous opportunity. We are in the premier position to be the premier provider of capital solutions to the hyperscalers.

Whether there is or isn’t an AI bubble in valuations is secondary to the question of whether people with some of the largest market caps, best credit ratings in the world are willing to commit to fifteen and twenty-year leases, which they are with us,

This is allowing us to deliver outstanding results for our investors in digital infrastructure, and in triple net lease. Remember our ORAD product as an example delivered an 11% return this past year.

All the headlines and noise aside, facts matter. And we’re delivering those results. We see that continued super cycle as an enormous opportunity. We know how to structure those leases so that they’re ironclad. We have a unique skill to actually build, develop, operate as people want it. We’ve done it with every one of the big hyperscalers in terms of being their partner.”

↩ Return to index

This monolithic view people are taking is gonna prove quite misguided

Blue Owl: “Software is an enabler. And the best companies are embedded in that position and have data moats and operating environments like health care, financial services with zero tolerance for risk environments.

They’re the adopters of AI. They’re the ones that are then turning around and saying, here, I can offer you an agentic solution to replace some of your human costs. I already have resident in your system and fully integrated into your daily behavior.

We understand the generic parts of software are vulnerable. We’ve studied our portfolios very carefully. We do not see any meaningful exposure to those more susceptible areas.

If you have the right software solutions, you’re gonna benefit from the adoption of AI.

This monolithic view and action people are taking is gonna prove quite misguided, and it’s gonna lead to a miss in significant opportunities. The book is strong. We don’t see meaningful losses. We don’t see deterioration in performance. And last point, the typical duration of a loan remaining in our books, let’s say, a software loan, is a few years. So when you have a business that is still growing double digits, and only a few years left and a 70% equity cushion, all we’re talking about is do we get our money back?

↩ Return to index

Our software portfolio companies generate significant cash flow and are growing faster than the overall credit portfolio

Ares: “Our software portfolio is highly diversified across many subsectors, with a very small percentage of the portfolio that we deem to have high risk of AI disruption. We lend at lower loans to value on software, which are in the high 30% range, compared to mid-40s LTV on the rest of the portfolio.

Our software portfolio companies generate significant cash flow, with EBITDA margins over 40%, average EBITDA over $350 million, and a growth rate that is faster than the overall credit portfolio over the past year.

↩ Return to index

Consensus

Deployment

KKR

We’ve also continued to lean into the opportunity within credit, deploying $44 billion in total over 2025. That’s up 14% compared to 2024.

Carlyle

Direct lending had a record quarter of originations. Our performance continues to be strong, with realized losses across the portfolio running at an average of just 10 basis points per year over the past decade.

Ares

After a slower first half, our U.S. and European direct lending deployment also increased sharply year-over-year, with investments into more than 240 different portfolio companies. Together, these two strategies represented just over half of our deployment for the year.

Apollo

If you look at the $305 billion last year, $245 billion was North America, $40 billion Europe, $15 million-$20 billion in Asia.

We’re taking this strategy global. When you think about why we were just in Japan, when you think about the Industrial Renaissance and that part of the globe, Asia Pac, along with how we’re focused on Europe, the answer to your question, big picture, is we’re going to take a very successful strategy of integrating origination to every aspect of our business.

We certainly have shown an ability to originate scale, but it’s really growth with intention. So I want to make sure that we’re not overemphasizing the growth in this point. We have a ton of robust yield, robust spread, and that’s what we’re trying to do.

Brookfield

Our objective is to deploy more than $100 billion of capital across the full AI infrastructure value chain, from land and power to data centers and compute capacity,

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Fundraising

Ares

Our record, $113 billion in total fundraising for the year, was capped off by a record $36 billion in the fourth quarter. It's noteworthy that we surpassed our previous record by such a wide margin without our two largest private credit campaign funds in the market.

KKR

We come off a year where we had record capital raising, almost $130 billion, and we’re on our way to meaningfully exceed our $300 billion-plus fundraising target that we set out from 2024 to 2026. We feel really good about the trajectory on management fees.

Apollo

Of the $100 billion of organic inflows into asset management during the year, approximately 75% went to credit-oriented strategies and 25% to equity-oriented strategies.

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Secondaries

Ares

Our secondaries group was a standout performer, with $12.9 billion raised and an increase in AUM of 45%. We ended the year with our secondaries business having nearly doubled in size since we acquired Landmark in mid-2021.

KKR

We have evaluated most of the secondary asset managers that have traded over the last decade. For a variety of reasons, we did not pursue any of those opportunities. However, we knew that when we found that right partner, the partner who could give us conviction that we could build a leading secondaries and solutions franchise, that we would be all in. We are confident that we have found that in Arctos.

Brookfield

In terms of secondaries, it is a space we track very closely. It’s growing rapidly. It’s a segment of the market where our expertise would be very clearly differentiating, and it would add an additional service that we could offer to our clients.

If we were going to do something, secondaries is probably near the top of the list, and we would focus on a platform that we thought would grow significantly as part of the broader Brookfield ecosystem.

Blackstone

Our secondaries platform saw a record year of deployment in 2025, and we see strong growth ahead fueled by the ongoing expansion of private markets.

Carlyle

AlpInvest has returned over $10 billion to our investors and invested a record $14 billion, highlighting both the breadth of the market opportunity and the scale at which the platform is operating.

We closed our largest ever secondary strategy at $20 billion, continuing to grow our co-investment platform and expanding our portfolio finance strategie

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Blackstone’s True North

Blackstone

The reason we have grown so much over forty years is because we have not lost sight of True North, which is delivering returns for our customers.

I know everyone’s always like, oh, larger is worse.

I think in this environment, having more scale and more data is a meaningful moat.

We raised $71 billion of inflows in a quarter, $239 billion in a year. In what has still been a pretty tough environment, real estate lagging, the M&A and IPO markets not quite open yet.

The ability to write these very large checks allows us, in our minds and in the numbers, to outperform.

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Partnerships

Apollo

What we see is a number of the leading investors in the world moving to this notion of total portfolio approach. Total portfolio approach essentially opens up the debt and equity buckets of these institutions to private assets in competition for what has historically been 100% market share for public assets.

You saw the announcement with Schroders this morning which I expect to grow into a multibillion-dollar partnership. And PRIV, our ETF with State Street, now approaches $700 million in size and, more importantly, it's among the top performers of investment-grade ETFs everywhere.

Again, proving that private can be both liquid and illiquid, in this case, private investment-grade being fully liquid.

Apollo

We need to adapt our business to the ways traditional asset managers work.

Moving your business to daily NAV is a big deal for our industry. We are in the process of moving, particularly our high-grade credit business to daily NAV.

That is an unlock. Providing liquidity in markets, which many in our industry have spoken against, is an unlock for traditional asset managers.

I think traditional asset managers could be the single largest opportunity. I expect them to be among the largest buyers. Some of that will be in the existing mutual fund complexes and ETF complexes. Some of that will be through new products. And some of that will be through 401(k).

BlackRock

We think that private credit and building great public-private portfolios is a very important growth vector within private markets

We have over 20 conversations right now where we’re working on high-grade SMAs with leading insurers and building private high-grade portfolios.

We’d hope to start seeing deployments pull through the second half of 2026, and we’re really focused on three things with them.

1. The first is delivering better outcomes for our insurance clients by working with them to migrate something on order of 10% of their existing public fixed income assets into private high-grade. So think of a $700 billion base migrating to $70 billion on order of that in private high-grade.

2. The second is expanding high-grade mandates, meaning new assets and winning new assets with clients away from our existing book.

3. And the third is also pursuing strategic partnerships, minority investments to increase the pool of insurance assets managed here at BlackRock. It is a highly interactive day-to-day thing. So being able effectively to blend turnkey full-service capabilities for insurance companies, that’s a key competitive advantage for BlackRock.

Integrating public fixed income, private credit, Aladdin, accounting, middle office services makes working with BlackRock a performance enhancer, a scale enabler. So there’s no doubt that this space has become more competitive, especially in private high-grade. But I think our experience is that insurance companies want a full-service partner and that we’re well-positioned to play that role given our track record in public fixed income technology and world-class capabilities in private credit.

Blackstone

On the insurance side, the fact that investment-grade credit is at 71 basis points, which is the tightest level since 1998.

The fact that we can bring our insurance clients an extra 180 basis points, which is what we did in 2025, obviously motivates them in this area.

The key remains, can we deliver a durable premium to what you can get in liquid credit?

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401(k)s

Apollo

On the 401(k) specifically, the big volumes in 401(k), in my opinion, are not going to come until there is rulemaking or at least guidance that will give more clarity to the executive order that has come down.

Having said that, if I had to give you my email inbox, the amount of activity taking place in defined contribution in all its quadrants is just off the charts.

Every conference, every industry get-together is literally just overwhelmed with a discussion of private assets, and for very good reasons. The addition of private assets to a portfolio, given the length of time these employees will be in these plans, are 50%-100% better outcomes.

The other interesting piece of this is the opening of 401(k) to guaranteed income, particularly guaranteed lifetime income. We moved as a world for something that was really good for employees. We moved from defined benefit. Employees loved it. Guaranteed lifetime income. Companies hated it.

We then moved to a world of defined contribution where all of the risk was essentially on the employee and not on the company. Been great for companies but not so good for employees.

Most employees have not made a proactive investment decision within their 401(k) ever. They are guided by the alternatives provided by the trustees of that plan. I believe the world we’re heading to is more of a hybrid world. where we will end up with something that looks more closely to defined benefit but will not be provided by the employers. It will be provided by the marketplace. Right now, we’re in the baby steps phase where every day we’re making progress. It will be north of $1 billion this year.

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Portfolio

Ares

LTVs are near historical lows in the 40% range. Interest coverage continues to strengthen, and quarter-to-quarter non-accruing loan trends are generally flat, while remaining well below historical average levels.

As an example, in our U.S. direct lending strategy, portfolio company EBITDA growth was in the low double digits for the last 12 months, and net realized loss rates were essentially zero on a net basis, which is in line with our 20-year average of 1 basis point in annual losses.

Apollo

When you look at our software PIK exposure, negligible.

When you look at our software ARR exposure, negligible.

When you look at our pre-2021/2022 software exposure, negligible.

Blackstone

There will be losses in non-investment grade credit. The key, of course, is your portfolio healthy?

Last year, we actually saw high single-digit growth in the EBITDA of our borrowers. The loan-to-values are sub 45%, and rates are coming down. So the credit metrics are healthy. The key remains, can we deliver a durable premium to what you can get in liquid credit? And that we feel very confident in terms of, you know, sort of outlook.

Blue Owl

Weighted average LTVs remain in the high thirties across direct lending, and in the low thirties, specifically in our tech lending portfolios. On average, underlying revenue and EBITDA growth across our portfolios was in the high single digits.

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IG Private Credit

Blackstone

We now manage $130 billion of IG private credit, up 30% year over year.

Why is investment-grade private credit growing so quickly? Two main reasons:

1. First, corporate investment-grade bond spreads are at their tightest level since 1998. We have been seeing insurers and now some pensions and sovereign wealth funds looking to earn materially higher spreads at the same or lower risk level.

2. Second, the build-out of AI infrastructure requires a massive amount of private debt capital for the construction of fabs, energy supply, and data centers.

↩ Return to index.

Real Estate

Blackstone

We see a number of positive signs which point to a better year ahead.

These include the sharp decline in construction starts, which have fallen to the lowest level in more than twelve years in the US, in both logistics and multifamily, our two largest sectors in real estate.

Continued growth in debt availability and declines in the cost of debt, a pickup in transaction activity, and now an improvement in logistics demand with our US platform reporting record leasing activity in Q4.

Brookfield

Across the highest quality office in global gateway cities, there is very low to no new supply coming on market. New supply is not expected for you know in large scale anytime soon, and yet tenant demand continues to grow.

The number of tenants we’re actively engaged with, who have very large requirements for high-quality space. We you know we signed two of the largest leases in downtown last year.

You look in London, one of the tightest markets globally now, setting record rents with each lease we sign in the city. Tenant demand in Canary Wharf, the strongest we’ve seen. So those are the underlying drivers for the growth in the NOI in office. Now, as we move those tenants in and we vacate space, it takes time to come through the numbers, but the underlying momentum and the valuation appreciation is coming through the numbers.

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Defaults

Blackstone

We think some of the headlines highlight isolated stress points rather than painting the full picture. We generally see stable credit conditions across the portfolios that we’re managing,

Context is critical. Like defaults and losses in the non-IG direct lending to corporates have been abnormally low for years, following low rates. Default rates in the broader leveraged loan market are averaging slightly below the long-term average at 3%. And in economic slowdowns, like default rates rose to 4-5%, the all-time peak in the GFC hit 15% on an issuer-weighted basis, and so direct lending defaults are rising, but they remain in historical ranges, so I think we see this period, as do many of the other firms, as a period of expected catch-up following a long period of very low defaults.

When we look through the universe of BDC loans, the $400 billion across 20,000 loans sitting in the valuation databases, we see non-accruals that are inside the historical average. We see PIK as a percentage of total interest income in line with historical norms, recovery rates that are in line with historical norms.

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Spreads

Oaktree

While large cap activity accelerated in the December quarter, middle market volumes were still below historical averages. Since the Fed rate cut in September, we have seen greater price discipline in the market and believe that spreads in private credit have now bottomed out at SOFR +450-475 basis points.

Oaktree

Direct lending transactions continue to offer an approximate 150 basis point spread premium relative to broadly syndicated loans with similar credit quality.

PIK interest remains prevalent in direct lending transactions, underscoring sponsors’ preference for flexible capital structures.

We continue to stay extremely disciplined in our use of PIK. In the first quarter, PIK, as a percentage of adjusted total investment income, was 6.3%, which is below the public BDC industry average.

↩ Return to index

Thanks again for reading. Let me know if you find these posts useful or how I can improve it for next quarter.

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This newsletter is for education or entertainment purposes only. It should not be taken as investment advice.

📕 Reads of the Week

Market Updates

• I sat down with The Credit Clubhouse to discuss what’s happening in private credit right now.

  • 👉Listen here.

• Pitchbook: The Rise of SRT Investing. Link

• JP Morgan: How should investors allocate to private credit today?

  • Place greater emphasis on selectivity and risk management than in the past. Reducing concentration risk, avoiding aggressive leverage structures, and maintaining diversification across vintage years.

  • The gap between top-quartile and bottom-quartile managers is already wide, and there is little reason to believe it will narrow. On the contrary, as weaker loans come under pressure, differences in portfolio construction and risk discipline will become more visible.

  • Investors should broaden beyond direct lending. Direct lending remains the core of the asset class, but it is no longer the only source of attractive risk-adjusted returns.

  • 👉 Read JPMorgan’s report here

• Muzinich: The Growth of European Markets. Link

• Debt Wire: European Direct Lending Rankings. European direct lending market shatters records for deployment. Link

  

Alternative Managers Are All Talking About Asset-Based Finance

• Nearly 7 out of every 10 earnings calls mention ABF, up ~14x in five years

  • 👉 Read the full report

Manager Updates

• Covenant Lite: How Ares Built Its ABF Platform. Link

• **RECOMMENDED LISTEN**: Jon Gray sits down with Morgan Stanley Co‑President Dan Simkowitz to unpack two out‑of‑consensus decisions that shaped his perspective.

  • 👉Listen here

• Dawson Partners, formerly named Whitehorse Liquidity Partners, is launching its inaugural credit secondary strategy. Link

Partnership Updates

• HSBC Asset Management partnered with Admiral, a UK insurer. Admiral will make an investment in HSBC’s UK Direct Lending Fund, as part of the partnership. Link

• Apollo partnered with Schroders, a $1 trillion+ UK asset manager, to develop a range of wealth and retirement investment solutions aimed at enhancing client choice and outcomes. Link

• P10, a Dallas-based manager, entered into a definitive agreement to acquire Stellus Capital Management, a U.S. direct lender, for $250 million. Link

Dispersion Is Back

Oaktree’s latest report is a reminder of why we shouldn’t be looking at averages.

Here are my highlights.

👉 Read the full report here

We’re entering a new era of dispersion

Behind buoyant index averages are sharply bifurcated cohorts of winners and losers.

• Equities are flying high but remain mostly propelled by a handful of AI superstars.

• Credit appears healthy in aggregate, but there’s a notable tail of unloved names.

• Economic growth looks robust but masks clear divergence in the experience of high- and low-income consumers, a phenomenon now termed the “k-shaped economy.”

These dynamics serve as a reminder that averages shouldn’t be relied upon in a sophisticated investment process.

During the low-interest-rate environment of 2009-2021, credit was “bunched up,” with limited dispersion around the index spread. Now yields are much healthier, but a tougher backdrop means we’re returning to a world where mistakes are punished – and potentially capitalized on. As Howard Marks recently wrote, the next phase is set to be more “interesting.”

Mind the Spread Gap

“Tight spreads but good yields” has become the familiar refrain. While that’s broadly accurate, looking under the hood gives a more nuanced perspective.

The senior loan index currently offers a yield of 7.9%, but BB-rated loans are at 5.7% and CCCs are at 16.1%!

It’s a similar story in the high yield bond universe, where index dispersion is the highest on record.

So why are unloved names falling so far through the cracks?

• Weak credit documentation has heightened fears of poor recoveries, meaning struggling names can face immediate selling pressure. The data justifies this fear. While payment default rates remain low, recoveries are well below their long-term average: the recovery rate on first-lien loans stands at 37.7% versus the 25-year average of 62.3%.⁹

• In the case of broadly syndicated loans, the dominant buyer – CLOs – has limited appetite for stressed loans. These managed vehicles must meet strict tests, including on CCC exposure, and must be relatively free of stress to secure economical financing from liability investors. This leads to structurally reduced demand for stressed credits.

• Aside from technical pressure (i.e., fewer willing buyers for structural reasons), some credits are trading at elevated spreads because they’re fundamentally troubled. A good portion of CCC-rated credits are genuinely under significant strain: 40% of CCC-rated borrowers have operating cash flow coverage below 1.0x.

Combine these factors, and it’s clear why certain names become pariahs. Encouragingly, part of the problem is that solid yields on performing names mean certain investors don’t need to reach for risk: performing credit investors can construct high-income portfolios without purposefully buying heavily discounted names.

Performing and PIKing

In the private credit world, dispersion is harder to map out. Without a developed secondary market, true price discovery is limited. However, it seems private credit loans are also increasingly bifurcated into fundamentally solid and fundamentally struggling, reinforcing the importance of selectivity.

Earnings have been generally strong, with EBITDA growth of over 8% YoY in 3Q2025, and net leverage has trended down over recent quarters.

Earnings Have Been Strong…

Default rates also remain very low, but there’s some stress under the surface, manifesting most evidently in the form of a reliance on payment-in-kind (PIK) interest as opposed to cash payment.

Roughly 20% of private loans have PIK optionality and over half have ended up taking the option.

But the good news is the instances where PIK emerges after the origination of a deal due to borrower stress remain relatively limited, representing around 4-5% of private loans.

But PIK Reliance Presents a Concern

What Next?

A dispersed market requires a nuanced management approach, rewarding both prudent risk control and intrepid opportunism. Relying on index averages won’t be enough, as the performance of assets within the same universe drift apart.

Part of the conundrum, as always, will be delineating between assets that are:

(a) unreasonably discounted due to psychological aversion and

(b) appropriately discounted because they’re fundamentally flawed.

👉 Read the full report here

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💰Fundraising News

Eurazeo, a Paris-based manager, closed its $570 million private debt continuation vehicle supported by Pantheon. The vehicle will purchase of a portfolio of performing European senior credit assets originating from Eurazeo’s legacy private debt platforms. This acquisition will also be supported with leverage. As part of the structure, Eurazeo will continue to manage the assets, ensuring continuity in portfolio monitoring and strong stakeholder alignment, while Pantheon will provide additional capital, giving Eurazeo new lending capacity to support European middle market companies. More here

Power Sustainable, a Canadian alternative manager, closed its $1 billion infrastructure credit fund. The manager lends across the infrastructure sectors, including energy and decarbonization, transportation and logistics, digital, social, utilities, and recycling. More here

LBP AM, a European alternative manager, closed its $600 million Infrastructure Debt Climate Impact Fund. All investments are directed towards low-carbon or decarbonising infrastructure that contributes to climate change mitigation. More here

Ruya Partners, an Abu Dhabi-based boutique private credit firm, is raising $400 million for its latest fund. The fund will focus on middle market lending in Saudi Arabia and the UAE. More here

This newsletter is for educational and entertainment purposes only. It should not be taken as investment advice.

📕 Reads of the Week

Manager Updates

• Three Reasons why Jon Gray and Blackstone are “super pumped” about Q4. 🚀

  • The deal engine is back. M&A volumes ran ~2.5x higher, and the IPO window has reopened.

  • A massive capex wave is underway. Data centers and energy infrastructure will absorb enormous amounts of long-duration investment.

  • Alternatives are taking market share. Insurance, pension, and retail demand continue to compound as investors look beyond traditional public markets.

    • 👉 Watch here

• Franklin Templeton is merging its European private credit unit, Alcentra, into Benefit Street Partners. Alcentra will wind down its direct-lending franchise and shift focus to managing existing assets. Alcentra will continue to run structured credit and special situations, all of which will now sit under the BSP banner. Link

• The FT’s insight piece into Jeremy Coller. The vegan activist who sold Coller Capital for $3.7 billion. Link

Market Updates

• Crescent Capital Direct Lending in the U.S. Middle Market: Stability Amid Uncertainty

  • Deal flow normalization continues, but quality remains bifurcated.

  • The best-in-class borrowers, those with strong recurring revenue, cash flow visibility, and defensible market positions, continue to attract competitive terms.

  • In contrast, second-tier credits are struggling to clear without structural enhancements or pricing concessions.

  • As a consequence, Private Equity firms have increased holding periods (See below)

  • 👉Read the full report here

• 🎧 The View From Apollo: The Convergence of Private and Public Credit. Link

• Antares 2026 Outlook. Link

  • (Nick Reminder: Interesting BDC Charts to review quarterly)

• KKR: Capital Market Assumptions. Link

• Invesco: The case for the European upper middle market

  • Read the report here

Not private credit, but worth a mention:

• Carlyle: Bubbles as a feature, not a bug. Link

• Why Private Equity Is Suddenly Awash With Zombie Firms. Link

Partnership Updates

• Citi announced a partnership with Blackstone, Blue Owl, and KKR, to launch evergreen funds for high-net-worth clients in Singapore and Hong Kong. Citigold Private Clients in Asia and the Middle East will gain access to private markets, including equity, credit, infrastructure, and real estate. These alternative asset classes have traditionally been reserved for institutional investors. More here

• Wells Fargo and Centerbridge Partners have invested more than $7 billion since their partnership launched less than two years ago. For 2025 specifically, it closed 18 transactions totalling ~$4 billion. More here

The State of Private Credit Secondaries

Credit secondaries have had a busy few weeks:

• Crescent Capital closed its $3.2 billion private credit continuation vehicle. The transaction was led by Pantheon and is the largest credit continuation vehicle transaction in the private credit secondaries market to date. More here

• Ares raised $7.1 billion for its Credit Secondaries fund. ACS is the largest dedicated institutional credit secondaries fund globally based on LP equity commitments. More here

• PGIM announced plans to deploy up to $1 billion over the next two years into private credit secondaries.

In light of this, I’ve pulled together the key takeaways from three reports that assess the current state of credit secondaries.

Read the reports below:

• 👉 Evercore

• 👉 Jefferies

• 👉 Pitchbook

Credit secondaries volume has set new highs every year post 2020

• While LP-led transactions have historically dominated, GP-led credit secondaries are taking a larger share as sponsors use secondaries as a repeatable tool for liquidity and portfolio management

• In 2025, GP-led activity accelerated materially, representing ~60% of total credit secondaries volume, reflecting increased use of structured solutions to address liquidity, fund optimization, and portfolio repositioning needs

Strong Pricing Into 2026

• Pricing remained in line with 2024 levels at ~91% of NAV

Credit Pricing Recovery: +1,400 bps Since 2023

• Credit has seen meaningful discount improvements since 2022, unlike Venture and Real Estate.

Read the full reports

• 👉 Evercore

• 👉 Jefferies

• 👉 Pitchbook

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Golub: Redefining opportunistic credit

I’ve previously talked about 2025 being the year of opportunistic credit. Golub’s latest report adds useful clarity on how to think about this opportunity set. Here are my three highlights.

• 👉 Read the full report here

Liquidity mismatches and funding challenges are always occurring

• While periods of extreme market dislocation or distress often generate attractive opportunities, such moments are rare, difficult to predict, and typically don’t last very long.

• The reality is that liquidity mismatches and funding challenges are always occurring in the credit markets, even during normal conditions.

• Recent examples include NAV lending, junior capital solutions, and SRTs.

Longstanding relationships and a deep understanding of each participant’s needs give us an edge.

• The best opportunistic credit managers sit at the centre of a diverse ecosystem that includes private fund GPs, portfolio companies, direct lenders, LPs, banks and other trading partners.

• Often, the key investment advantage comes not from just analysing the numbers, but from knowing the people and the businesses.

The middle ground has many appealing characteristics,

• The “opportunistic” space is a broad and highly diverse zone stretching from senior lending at the top of the capital stack all the way to common equity and warrants at the bottom - and almost everything in between.

• This middle ground has many appealing characteristics, with its performance delivering an attractive blend of equity upside and contractual yield, typically with an internal rate of return (“IRR”) in the mid-teens.

• The opportunistic arena rewards agility, relationships and structuring expertise more. The deals we pursue often do not fit neatly into the mandates of traditional private equity or direct lending funds, which is why this strategy offers such value to investors looking to diversify.

• The result is a diversified hybrid of credit-oriented investments with a lower correlation to other private market exposures and a comforting margin of safety (thanks to that contractual income component).

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💰Fundraising News

Tree Line, a US-based manager, closed its fourth flagship fund with $1.1 billion in total capital commitments. The direct lending fund is focused on lending to US lower-middle-market companies. The firm provides first lien term loans and equity co-investments to companies with between $5 to $30 million of EBITDA in North America in transaction sizes up to $150 million. More here

Investec, a UK-based Alternative Manager, announced a final close of over $700 million for its second private debt fund. The fund will lend senior secured and subordinated debt to private equity and corporate-backed businesses with EBITDA between €3 million and €50 million. The fund’s primary geographic focus is the UK, Ireland, Benelux, and DACH region. More here

Ambienta, a sustainability-focused manager based in Italy, raised more than $600 million for its inaugural private credit fund. The fund is focused on lending to environmentally sustainable mid-market companies in Europe. The fund has already deployed €300 million across 13 portfolio companies, with investments spanning areas such as energy infrastructure, water, and food ingredients. More here

Alantra, a Spanish Alternative manager, launched its second European real estate debt fund, with a target size of €200 million. The fund will finance European mid-market real estate. More here

XSML Capital, a Netherlands-based lender, closed its $142 million African Rivers Fund IV. The fund finances SMEs in African frontier markets with loan sizes between $300,000 to $10 million. Investments to date are concentrated in the DRC (47%), Angola (22%), Uganda (17%), and Zambia (14%), across manufacturing, retail, beverages, food processing, and the pharmaceutical sector. More here

This newsletter is for educational and entertainment purposes only. It should not be taken as investment advice.